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Consume Preference

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3
3.1 3.2

C H A P T E R

CONSUMER PREFERENCES AND THE CONCEPT OF UTILITY

R E P R E S E N TAT I O N S OF PREFERENCES

UTILITY FUNCTIONS

APPLICATION 3.1 APPLICATION 3.2 APPLICATION 3.3 APPLICATION 3.4

Influencing Your Preferences

How People Buy Cars: The Importance of Attributes Taste Tests Hula Hoops and Pet Rocks

Why Do You Like What You Like?
If you are thinking about buying a car, your choices can be overwhelming: Should you buy or lease? New car or used? A sport utility vehicle, a sedan, a sports car, or a minivan? Should you get a sunroof or four-wheel drive? How much extra would you pay for a vehicle that will have a high resale value in the future? What are the expected operating expenses for each model—insurance, repairs, gasoline, and so on? Finally, what opportunities will you forgo if you buy a car? How else could you spend your money, either today or in the future? Making decisions about a product with many options is not easy. Before buying a car, for example, you might draw on the experiences of friends and family, read advertisements, visit dealers, and test-drive vehicles. You might also research different models and financing options on the Web, read Consumer Reports, price insurance rates for favorite models, or even visit chat rooms frequented by car buffs. As a consumer, you make choices every day of your life. Besides choosing among automobiles, you must decide what kind of housing to rent or purchase, what food and clothing to buy, how much education to acquire, and so on. Consumer choice provides an excellent example of constrained optimization, one of the key tools discussed in Chapter 1. People have unlimited desires, but limited resources. The theory of consumer choice focuses on how consumers with limited resources choose goods and services.

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