Consumer Choice Under Rising Grocery Prices: Tradeoffs Between Food and Gasoline Spending
Estefany Moz Ruiz
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: BS.FINANCE
Faculty Research Mentor: Kochersperger, Eli
Abstract:
Title: Consumer Choice Under Rising Grocery Prices: Tradeoffs Between Food and Gasoline SpendingAuthor: Estefany Moz Ruiz, Department of Accounting & Finance, Kean UniversityAbstract:The rise of grocery prices puts pressure on household budgets which makes consumers reconsider how they allocate spending on essential categories. This project examines how an increase in grocery prices affects household consumption tradeoffs between food and gasoline spending using a standard consumer choice framework from microeconomic theory. The objective is to model how price changes can alter attainable consumption bundles, optimal choices, and consumer welfare.This study applies a two good utility maximization model where households allocate income between groceries and gasoline are subject to a budget constraint. When the price of groceries increases then the budget line rotates which changes relative prices and opportunity costs. Assuming complete, transitive, monotonic, and convex preferences, the model predicts that households will adjust their optimal consumption bundle through substitution and income effects and move to a lower attainable indifference curve. These theoretical predictions will be illustrated using Consumer Price Index data for food at home and gasoline to demonstrate real world price variation and the implications for household tradeoffs.This analysis contributes to understanding how price increases in essential goods change how households make spending decisions and affect their overall well being. By connecting price changes to formal microeconomic theory this project gives a clear and visual interpretation of household budget adjustment. The same approach can also be used to study other spending tradeoffs and rising cost of living pressures.Keywords: consumer choice, budget constraint, food prices, gasoline prices, substitution, income effects