Chapter 3.1, Problem 1R

Solution

The given terms are to be explained.

Consumer: Consumer is defined as the person who buys or utilizes good and service to satisfy their needs and wants. Consumers spend their money in different types of things like food, shelter, clothing and many other things.

Disposable income: Disposable income is the income that a person is left with after paying all the taxes. Disposable income is a part of income that is available to spend.

Discretionary income: Discretionary income is the income that is left to spend on extras like luxury items or saving or entertainment after buying the necessities like food, clothing and shelter.

Rational choice: When the consumer decision takes place on the basis of opportunity cost is called rational choice. Rational choice involves choosing the best alternative that is less expensive as compared to other goods. Consumers always choose the goods that would best satisfy their wants. every consumer has different value of expenditure. So, there will be billions of rational choices occurs based on the different expenditure value of different consumers.