Consumer behaviour.ppt

7/21/2019 Consumer behaviour.ppt

1/38

CONSUMER BEHAVIOUR AND ANALYSIS

UTILITY :EXTENT OF OF SATISFACTION OBTAINED FROM THECONSUMPTION OF GOODS AND SERVICES PREFERRED

BY CONSUMERS

APPROACHES

CARDINALIST APPROACH: Utility can b !a"#$% in "#b&cti' t$!" ($ it i" )#anti*iabl+

ORDINAL APPROACH: Utility cann(t b !a"#$% b#t (nly $an,% inO$%$ (* -$*$nc+


2/38

CARDINAL APPROACH . La/ (* Di!ini"0in1 !a$1inal

Utility

TOTAL UTILITY :T(tal "ati"*acti(n n&(y% *$(! t0c(n"#!-ti(n (* t0 1((%+

MARGINAL UTILITY :Rat (* c0an1 in t(tal #tility -$ #nitc0a$1 in t0 )#antity (* t0 1((%c(n"#!%+

C0an1 in t(tal Utility

2 #nit c0an1 in 3#antity C(n"#!%

LA4 OF DIMINISHING MARGINAL UTILITYMa$1inal Utility (* any 1((% tn%" t( %clin a" / c(n"#! !($

Unit" (* it ('$ a %*init -$i(% (* ti!+ T0 %ia1$a!atic

$-$"ntati(n i" a" *(ll(/"+


3/38

Pint" (*

B$

TUMU

0

1

2

3

4

5

6

7

010

18

24

2830

30

29

-

10

8

6

42

0

-1

Total Util ity

0

10

20

30

40

0 1 2 3 4 5 6 7 8

Total Utility

La/ (* Di!ini"0in1 Ma$1inal Utility


4/38

Utility

Economists use the term #tilityto describe the satisfaction or

enjoment deri!ed from the consum"tion of a #ood or ser!ice$ %f

&e assume that consumers act rationa''( this means the &i''

choose bet&een different #oods and ser!ices so as to ma)imi*e

tota' satisfaction or tota' uti'it$

+onsumers &i'' ta,e into consideration

o& much satisfaction the #et from buin# and then consumin#

an e)tra unit of a #ood or ser!ice

.he "rice that the ha!e to "a to ma,e this "urchase

.he satisfaction deri!ed from consumin# a'ternati!e "roducts

.he "rices of a'ternati!es #oods and ser!ices


5/38

E5-$i!nt 6

+onsumers #o sho""in# &ith /s 2500 in hand each

Ma"#$ (* "ati"*acti(n 7UTILS8It!" A'ailabl P$ic C(n" 1 C(n" 6

randed eans 1000

erba' cosmetics 200

i**as 150

anc atches 500

ambur#ers 100

e&e''er 500


6/38

E3UILIBRIUM CONDITION . LA4 OF E3UI . MARGINAL

UTILITY

oin# b the assum"tion of rationa'it consumer attains eui'ibrium

n' &hen he uses that bund'e of #oods &hich #i!es him the hi#hest'e!e' of satisfaction

u""ose a consumer s"ends his income in "urchasin# 3 #oods

:1( :2( :3 &ith res"ecti!e "rices of 1( 2 ;3 the consumer &i''a''ocate his income bet&een the three #oods in such a &a that the

Mar#ina' uti'it "er /s he s"ends on e!er #ood is eua'ised and his

tota' uti'it is ma)imised$ E# if here are n number of #oods

MU9P2MU9P6MU9P;


7/38

A""#!-ti(n"

.he "rinci"'e of eui-mar#ina' uti'it is based on the fo''o&in# assum"tions?

@aA .he &ants of a consumer remain unchan#ed$

@bA e has a fi)ed income$Mar#ina' uti'it of mone is constant

@cA .he "rices of a'' #oods are #i!en and ,no&n to a consumer$

@dA e is one of the man buers in the sense that he is "o&er'ess to a'ter the

mar,et "rice$

@eA e can s"end his income in sma'' amounts$

@fA e acts rationa'' in the sense that he &ant ma)imum satisfaction

@#A Uti'it is measured cardina''$ .his means that uti'it( or use of a #ood(

can be e)"ressed in terms of units or uti's$ .his uti'it is not on' com"arab'e

but a'so uantifiab'e$


8/38

CRITICISMS OF UTILITY THEORY

ome economists c'aim that uti'it cannot be measured objecti!e'$ .here are a'so

doubts about the assum"tion of $ati(nal b0a'i(#$amon# consumers - "articu'ar' in

&or'd &here consumers cannot e)"ect to ha!e a'' the information a!ai'ab'e on the

"roducts a!ai'ab'e in a mar,et$

T0 i!-($tanc (* c(n"#!$ *%bac,

%n standard "rice theor( the-$*$nc" (* c(n"#!$" are ta,en as fi)ed - et &e

obser!e that consumerBs beha!iour in a mar,et is often inf'uenced b their int$acti(n

/it0 (t0$ c(n"#!$"and this then affects demand$

#ood e)am"'e of this is the beha!iour of consumers &ho attend sho&in#s of a ne&

fi'm to a cinema$ .heir reaction to a fi'm &i'' often determine ho& man other "eo"'e

choose to "a to &atch the same fi'm$ C(n"#!$ *%bac,ma be more si#nificant than

an amount of h"e and ad!ertisin# before a fi'm is re'eased$

nother #ood e)am"'e is the feedbac, of consumers &ho !isit a 'oca' restaurant or

feedbac, from "eo"'e &ho ha!e staed at a "articu'ar ho'ida resort$ .heir e)"eriences

ma e)ert a si#nificant inf'uence on the "references and choices of other consumers$ %t i

'itt'e &onder that man successfu' firms trace some of their success at their &i''in#nessand abi'it to res"ond "ro-acti!e' to consumer feedbac,$


9/38

D$i'ati(n (* t0 %!an% c#$'

Eiu'ibrium condition of the consumer is #i!en as

MU >MUm1

%f 1 fa''s it automatica'' im"'ies that MU shou'd fa'' for eui'ibrium

to be restored

urthermore it is e!ident that MU can decrease on' if Cuantit

demanded increases

.herefore &hen "rice of #ood fa''s consumer &i'' bu more of the #ood

.o euate mar#ina' uti'it to 'o&er "rice$ ence the in!erse re'ationshi"

et&een "rice ; uantit

mu1

mu2

mu3

q1 q2 q3

p1p2

p3

q1 q2 q3


10/38

ILLUSTRATION

28 ASSUME THAT UTILITYCAN BE MEASURED IN RS+ FROM THE UTILITY SCHEDULEGIVEN BELO4+FINO HO4 MANY CO=ES THE CONSUMER 4OULD CONSUME AT THE

PRICE OF RS+ > PER CO=E+

E3UILIBRIUM IS REACHED AT A LEVEL 4HERE MU P i++ 4HEN ; CO=ES ARE CONSUMED

68 A CONSUMER HAS AN INCOME OF RS+ 2> FOR A 4EE=+ HE 4OULD LI=E TO SPENO ALLTHE RS+ 2> ON THREE GOODS X? Y @ + PRICES OF X? Y @ ARE RS+ ? RS+ ; AND RS+ 2+

THE MARGINAL UTILITY SCHEDULE IS SHO4N BELO4+

COKES TOTAL UTILITY MU

1

2

3 4

5

30

45

54 59

59

0

15

9 5

0


11/38

E3UILIBRIUM IS REACHED 4HEN MU 4HERE THE CONSUMER 6 UNITS OF X?

P

6 UNITS OF Y AND ; UNITS OF 6+

ALLOCATION OF EXPENDITURE

UNITS MARGINAL UTLITIES MuX MuY MuZ

P P! P"

X Y Z X Y Z

1 30 1# # $ $ #

2 25 15 % 5 5 %

3 20 9 5 4 3 5

4 15 $ 4 3 2 4

5 5 4 3 1 1&33 3

'TY X PRICE ( EXPEN)ITUREGOO) * X 2 5 ( 10 4 5 ( 20

GOO) * Y 2 3 ( $ 3 3 ( 9

GOO) * Z 3 1 ( 3 5 1( 5

TOTAL 19 34


12/38

A FAMILY HAS A MONTHLY BUDGET OF RS+ ; FOR CHEESE? FISH AND HEAT PREVAILING

PRICES ARE RS+ 69 =G CHEESE ? RS+ 9=G FISH AND RS+ 9 =G MEAT+

UTILITY SCHEDULE IS SHO4N BELO4

4HAT IS THE MAXIMUM TOTAL UTILITY THAT CAN BE ATTAINED

TU 2 2 2

CONS C+EESE ,IS+ MEAT

1

2 3

4

5

$

%

%0

130 1%0

205

230

250

2$0

#0

1$0 210

250

2#5

315

335

1$0

290 410

510

590

$50

$#0

CONS C+EESE

MU MU- P

,IS+

MU MU - P

MEAT

MU MU - P

1

2

3

4

5

$

%

%0 3& 5

$0 3& 0

40 2& 0

35 1& %5

25 1& 21

20 1& 00

10 0& 5

#0 2& 0

#0 2& 0

50 1& 25

40 1& 00

35 0& #%5

30 0& %5

20 0& 5

1$0 3& 2

130 2& $0

120 2& 40

100 2& 00

#0 1& $0

$0 1& 20

30 0& $


13/38

CONSUMER SURPLUS

C(n"#!$" "#$-l#" i" %*in% a" t0 %i**$nc bt/n /0at a

C(n"#!$ i" /illin1 t( -ay an% /0at / act#ally -ay"+

ILLUSTRATION APPLICATION

P NP

A

O '

p1p2

q1 q2

.1 .2A

E

/

)

)1

p1p0

q1 q0

p

P.u.

u.pu

)

6

C7um.8

u.pu

)6 :;


14/38

RATIONALE BEHIND THE THEORY

=EY 3UESTION

CAN ONE ACTUALLY MEASURE UTILITY CARDINALLY J

DOES MONEY POSSESS CONSTANT MARGINAL UTILITY J

IS IT PRAGMATIC TO ADOPT AN OBKECTIVE VALUATION

OF A SUBKECTIVE CONCEPT J

BIRTH OF THE INDIFFERENCE CURVE ANALYSIS .IT IS

MORE REALISTIC TO RAN= YOUR PREFERENCE

THAN MEASURE YOUR SATISFACTION


15/38

DEFINITION .INDIFFERENCE CURVE IS THE LOCUS OFPOINTS OF PARTICULAR COMBINATION OR BUNDLES OF

GOODS 4HICH YIELD THE SAME SATISFACTION TO THE

CONSUMAR SO THAT HE IS INDIFFERENT AS TO THE

PARTICULAR COMBINATION HE CONSUMES+

ASSUMPTIONSRATIONALITYORDINALITY

DIMINISHING MRSCONSISTENCY @ TRANSITIVITY OF CHOICE?

A B? THEN B 9A? IF AB? an% BC

T0n AC


16/38

A DISCUSSION ON THE CONCEPT SLOPE

SLOPE OF THE IC CURVE . MARGINAL RATE OFSUBSTITUTION BET4EEN X @ Y

MRS5y . AMOUNT OF A CONSUMER IS 4ILLING TO

GIVE UP FOR AN ADDITIONAL UNIT OFX

MU5 9 MUy

MATHEMATICALLY IT IS THE SLOPE OF A TANGENT AT

ANY POINT ON THE IC dy / dx (neg ative)

SLOPE OF THE BUDGET LINE . PRICE RATIO OF THE

T4O COMMODITIES X @ Y P5 9 Py


17/38

IC1

2

MRS>1

4 $ # 10

2

4

$

#

10M/)

2

1

0$5

d

d)

,

DE .E %+ +U/E . >M/) at @Mu)


18/38

2 4 $ 10

2

#

4

$

#

10

G


19/38

I

I

G


20/38

INDIFFERENCE MAP

IC1

IC2

IC3

i#her %ndifference cur!es #i!e more satisfaction

s more of both #oods : and G are consumed

'

'!

!


21/38

IC1

IC2

IC3

P

P!

'

!

E

CONSUMER E3UILIBRIUM

t "oint E the s'o"e of the indifference cur!e is tan#entia' to the

'o"e of the bud#et 'ine> M/) > )


22/38

A

/

C

IC1

IC2

MRS(1

121

34

5

1 2 3 4 5 1 2 3 4 5 $1

2

3

45

$MRS?1

A

/

P

R

O C ) '

'!

P$(-$ti" (* in%i**$nc c#$'"

2+ Di!ini"0in1 MRS

+ T/( IC

C#$'" %( n(tnt$t"ct

;+ IC c#$' i" %(/n/a$

"l(-in1

10


23/38

C)

C

J

K

C)

C

J

C)

C

2 4 6 8 10

2

4

6

8

10

U.%.U.E +MDEMEF.

Only Y i" c(n"#!% Eit0$ X ($ Y i"

c(n"#!%

S(! 5c-ti(n"


24/38

J

C)

C

o

Only X i" c(n"#!%


25/38

INCOME EFFECT

IC1

IC2IC3

1

2ICC

A

/

A1

/1

A2

/2


26/38

IC1

IC2

IC3

A

/ 1 /1 /2

P

P.: @@=

)


27/38

IC1

IC2

1

2

1 2

A

//1

C

)

'

PRICE EFFECT INCOME EFFECT SUBSTITUTION EFFECT

P.: @@= 2B ( IE 12B SE 1B


28/38

D!an% *($ 327n8 $i"" $i"" $i""

D!an% *($ 367 I8 *all" *all" *all"

D!an% *($ 3;7G8 $i"" *all" *all"

SE IE PE

Gi**n 1((% N1ati' inc(! **ct (#t/i10" -("iti'

S#b"tit#ti(n **ct


29/38

IC1

IC3

1

2

1 2

A

//1

C

)

'

PRICE EFFECT INCOME EFFECT SUBSTITUTION EFFECT

P.: @@= 2B ( IE 12B SE 1B

IC2

SLUTS=YS MEASURE

Y


30/38

IC1

IC2

IC3

A

/ 1 /1 /2

P

)

D$i'ati(n (* t0 %!an%

c#$'

1

23

)

)

P.:

'u67=:=!

p1

p2

p3

o

OA9OBY9Y9-5-5

Y


31/38

Mathematica' Jeri!ation of the s'o"e of %+ cur!e

U>f@)A>,

.ota' differentia' of uti'it function is

dU> U-!dH U-d)

> @MuAd H@Mu)Ad)

.ota' chan#e in U is caused b chan#es in ;) a""ro)imate'

Eua' to chan#e in L Mu H chan#e in )L Mu)

'on# an %+ cur!e tota' differentia'>0

dU>@MuAd H@Mu)Ad)>0

/earran#in# &e #et

-dMU) M/ )( /

-d)MU M/ () /


32/38

Sl(- (* b#%1t lin

Y -5)5 -y+)y 7inc(! c(n"t$aint8

S(l'in1 *($ )y / 1t t0 )#ati(n (* b#%1t lin a"

Py)y -5 )5 Y

)yP59Py+)5Y9-y

Sl(- (* t0i" lin qy/ qxP59Py


33/38

C(n"#!$ 0a" a !(nt0ly b#%1t (* R" 2+ T0 -$ic" (* X @Y 1((

H c(n"#!" i" R" 2 9=1 (* X an% 29lt$ (* Y+ Hi" #tility *#ncti(n i"

Hi" #tility *#ncti(n i" U7XYXY8+ Fin% t0 (-ti!#! "-n%in1 (n

1((% X@Y+

MU59MUyP59Py

MU5 U/ xY2

MUy U/ y(X2

P52

Py2

C(n"#!$ !a5i!i"" 0i" #tility by )#atin1

MU59MUyP59PyY29X2292

2Y22X 2

2X2Y


34/38

Gi'n b#%1t (* 2

P5+)5Py+)y2

252y2

2y2y2

;y>>

Y>>9;

;;+2X+6

O-ti!#! "-n%in1 (n 1((%

X +62 6+

Y;;+22>+

D!an% *#ncti(n *($ -$(%#ct Y


35/38

D!an% *#ncti(n *($ -$(%#ct Y

4 " t0at at )#ilib$i#!

7Y2897X28 29-y

25 2 Py7Y28

X Py7Y282

2

Gi'n t0 b#%1t c(n"t$aint (* R" 2

P5+XPy+Y 2

Py7Y282 Py+Y 2

2

Py7Y282 Py+Y 2

Py+y PYPY22

2+


36/38

6Py+Y Py 22

Py76y28 22

Py 2296Y2 D!an% *#ncti(n


37/38

S#--l!nta$y

inc(!

;

6

!

X2 X; X6

A

B BD

C

O

L

=

C("t (*

"#b"i%y

X

*((%

YInc(!

I2

I6

GOVERNMENT POLICIES

C iti


38/38

C$iti)#

+an a consumer order his "references as "recise' and rationa''

s the theor im"'ies

+an the effect of ad!ertisin#( of "ast beha!iour@habitA(of

%nterde"endence of consumer "references be i#nored

Joes this theor estab'ish the sha"e of an %+ cur!e or is it just

assumed

CONCLUSION

h do &e stud consumer beha!iour inde"th

ns&er 'ies in the fact that mar,et demand is a summation

f indi!idua' demand hence the e)amination of the beha!iour of

the consumer &hich in turn deri!es the indi!idua' demand cur!e

i f b i ' < ' d i

Consumer behaviour.ppt

Documents