Consumer Behavior Consumer Behavior To use budget in such a w ay so as to get To use budget in such a w ay so as to get maximum satisfaction (utility). maximum satisfaction (utility). Utility: Utility: ´satisfaction achieved by using a good or service is ´satisfaction achieved by using a good or service is called utilityµ called utilityµ Or Or ´ The power of a commodity to satisfy human wants is ´ The power of a commodity to satisfy human wants is called utilityµ called utilityµ
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Law of Diminishing Marginal UtilityLaw of Diminishing Marginal Utility
´if other factors remain constant then by ´if other factors remain constant then by
consuming more and more units of aconsuming more and more units of a
commodity, the utility derived from eachcommodity, the utility derived from eachsuccessive unit will be diminished (decreased)µsuccessive unit will be diminished (decreased)µ
Cardinal Theor y (Cardinal Theor y (Dr. Marshall)Dr. Marshall) ´Utility is measurable in terms of specific numbers´Utility is measurable in terms of specific numbers
calledcalled utils utils µµ
Utils:Utils:
An imaginary unit of satisfaction from the consumption An imaginary unit of satisfaction from the consumption
The excess of what a person would have been The excess of what a person would have beenprepared to pay for a good (i.e. utility) over whatprepared to pay for a good (i.e. utility) over whatthat person actually paysthat person actually pays
The difference b/ w what you are willing to mpay for The difference b/ w what you are willing to mpay forone more unit of a good and what you are actually one more unit of a good and what you are actually chargedcharged
Derivation of Demand Curve (underDerivation of Demand Curve (under
utility approach)utility approach) An individual·s Demand curve An individual·s Demand curve
PPX X = MU= MUX X
The market demand curve The market demand curve The horizontal sum of all individual·s demand curves The horizontal sum of all individual·s demand curves