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also improve their decision making if they ignored sunk costs. A sunk cost is a cost that has already been paid and cannot be recovered. Finally, people would improve their decision making if they were more realistic about their future behavior. Appendix: Using Indifference Curves and Budget Lines to Understand Consumer Behavior (pages 339350) Use indifference curves and budget lines to understand consumer behavior.
Chapter Review
Chapter Opener: Can Justin Bieber and Ozzy Osbourne Get You to Shop at Best Buy? (page 309)
In 2011, Best Buy ran a new commercial during the 2011 Super Bowl, where they can reach over 110 million viewers, about a Buy Back program. This commercial featured a pair of celebrities: Aging rock star Ozzie Osborne and teenage singing sensation Justin Bieber. Best Buy managers believe that celebrity endorsement will increase their sales of cell phones and other electronics. Firms must understand consumer behavior to determine the best strategies for selling their products. In this chapter, we will examine how consumers make decisions about which products to buy.
10.1
Learning Objective: Define utility and explain how consumers choose goods and services to maximize their utility.
Utility is the enjoyment or satisfaction people receive from consuming goods and services. Economists assume consumers spend their limited budgets on the bundle of goods and services that provides them with the most utility, although utility cannot be measured exactly. If we assume that utility can be measured, then a certain number of utils (units of utility or satisfaction) are associated with each unit of a product. Marginal utility (MU) is the change in total utility a person receives from consuming one additional unit of a good or service. The law of diminishing marginal utility states that consumers experience less additional satisfaction as they consume more of a good or service during a given period of time.