Changes in Price Affect Consumer Choices
Changes in Price Affect Consumer Choices?
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How do Changes in Price Affect Consumer Choices?
A rise in price will affect the allocation of a limited budget. Generally, the utility maximizing choice will be the point at which the marginal utility received from the purchase of the next unit of each good is equal.
If the price of one good rises, then the quantity of that good that can be purchased will go down. This will necessarily change the marginal utility received from purchasing the next unit of the good - if the number of goods capable of purchase is less.
As such, the consumer will need to choose a combination of goods to purchase that expends the available budget but balances the utility received for the next purchase between all of the goods under consideration.
- Total utility
- Marginal Utility
- Diminishing Marginal Utility
- Marginal Utility per Dollar
- Rule of Maximizing Utility
- Consumer Goods
- Changes in Income Affect Consumer Choices
- Changes in Price Affect Consumer Choices
- Substitution Effect
- Income Effect
- Budget Constraints Create Demand Curves
- Lifecycle Model of Consumption
- Autonomous Consumption
- Permanent Income Hypothesis
- Lipstick Effect
- Engel's Law
- Paradox of Thrift
- Ricardo Barro Effect
- Consumer Confidence Index
- The Wealth Effect
- Behavioral Economics