| Chapter 3 Appendix Outline |
| I. CONSUMER BEHAVIOR |
| A. Assumptions of Consumer Behavior |
| 1. Economists believe in the principle of consumer sovereignty |
| a. Underlying this principle is the assumption that consumers know their
wants and how to satisfy them. |
| 2. Economists believe that consumers attempt to maximize the benefit received
from the consumption of goods and services. |
| a. The benefit consumers expect to receive is expressed through their buying
behavior. |
| | 1. The benefit expected from consuming a good must be at least as
great as the expected opportunity cost. |
| 3. The demand schedule is a table showing how the quantity demanded changes
as price changes, holding all other factors that affect demand constant. |
| a. This schedule shows the marginal benefit of a good. |
| | 1. Marginal benefit is the maximum price that an individual will pay foran additional unit of a good. |
| b. According to the schedule, marginal benefit will fall as additional units
of a good are consumed. |
| c. The demand schedule can be used to find consumer surplus. |
| | 1. Consumer surplus is the difference between marginal benefit,
expressed in dollars, and the price actually paid for a good. |
| | 2. Consumer surplus can be interpreted as the gain from trade. |