Question

How is the model of consumer choice different from the simple model of decision making that we discussed in Lecture 4 (on Optimal Decisions)? In what ways are the models of decision making similar? What are the marginal benefits and marginal costs for the consumer in deciding their optimal bundle? What role does the budget play in finding the optimal bundle?

Answer 1

While making simple decisions ,choices do not have active negotiator to persuade on their behalf.But when we take consumerism or consumer choice into consideration , choices  have the marketing team to use different types of strategies to influence a consumer's decision when they are trying to choose  their product .

The two models are similar because both involve decision making and the choice rests on the consumers if they can see beyond the colorful packaging and advertising.

The optimal consumption bundle is the bundle that maximizes the consumer's total utility given his budget constraint.Marginal means one extra unit. A consumer's marinal cost is the cost of consuming one extra unit and  marginal benefit is the revenue he gains  from consumption of the extra unit.So in deciding maximization of utility MC must be equal to marginal benefit.

Budget is important because the cost is equal to the money income of the consumer.