What economists call “utility maximization” is just formalizing the common observation that given the option, people prefer to be a little wealthier and a little healthier. In the real world we run up against constraints that require us to reconcile our dreams and desires by our wallets and abilities. So how should we decide what to spend our time and money on? An economist would suggest you spend your next dollar on the thing that will bring you the most satisfaction.
Imagine walking into a grocery store with $100 to spend on supplies for the next week. Among the thousands of things on the shelves what would end up in your basket? Think of all the choices you would end up making and how they would differ from the rest of your classmates. Even though we all might walk in with the same budget, our tastes and preferences lead us to fill our cart with the combination of goods that fit our unique preferences.
For this case study, I want you to go virtual grocery shopping. Go to HEB.com and fill up your cart using a $100 budget then respond to the following prompts.
(1) Afteryouhavemadeyourselections,reviewyourcartandprintofthewebpageasaPDF.Save the file as [First Name] [Family Name] – My Cart.pdf (for me this would be Jon Carrasco – My Cart.pdf). You will need to turn this in as part of your case study to receive credit for the assignment.
(2) Provideabriefexplanationofwhyyoumadetheselectionsyoudid.Forexample,wereyou shopping with the intent of just restocking your pantry with staples or were you shopping with the intent on hosting a cookout or tailgate? (100 words)
(3) NowIwantyoutorevisityourshoppingcartandpretendyourbudgetisnowonly$75and consider how this will impact the selections you made. Which items will you choose to get rid of? Will you decide to trade in a brand name for a generic one? Explain your choices using the terminology of “income effect” and “substitution effect” we learned in this chapter. (200 words).
(4) Lookingattheitemsyouchosetoremovefromyourcart,wouldyoudescribethesegoodsas “necessities” or “luxuries”? In either case, explain why these items lost out to the other ones left in your cart. In your response be sure to relate your answers to the topic of utility maximization. Were your decisions consistent with the “rational behavior” of a utility maximizing individual? (150 words).
Type up your responses in a word processing platform like Word or Pages and when complete save your submission as a PDF file. You need to turn in both your responses to the questions above and the saved PDF of your cart into the assignment folder by the due date to receive credit.
