Concepts In Consumer Behaviour
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Utility
The want satisfying power of a commodity for a particular period of time is called as utility. It is the main basic for demand for that commodity. Every economic good has utility as we've written in previous concepts.
Cardinal utility
This concept was developed by Marshall a British economist. if the satisfaction derived from a different commodities by the consumer is expressed in terms of numbers (numerical values) such as 1, 2, 3, 4... etc It is called as Cardinal utility. (Cardinal numbers).
Ordinal utility
This concept was introduced by John R. Hicks. According to this concept, Utility is subjective so, The satisfaction can be measured by ranks such as, 1st, 2nd 3rd, 4th... etc. We can observe the difference between satisfaction which is derived by consuming different goods.
Scale of preferences
Friends, It is a very basic concept in economics which can be used practically. As consumer increases his level of purchases, It reflects on tastes and preferences of consumer.
Price line
It shows the possible conditions of any two goods which a consumer can buy with the given income of the consumer and the prices of that two goods. It is also called as budget line.
MRS (Marginal rate of substitution)
Total utility
It is the total amount of utility which is derived by the consumer by consuming all given stock of the commodity In a particular period of time. It can be written as tun = f(q n) Total utility is maximum when the marginal utility is 0.
Marginal utility
Friends, In economics the term/concept "Marginal" is always refers to additional or extra. Marginal utility is the additional utility which is derived from the consumption of
additional unit of the commodity. This can be written as
Mun = tun-tu(n-1)
Or MU (Marginal utility) = Δtu/Δq
Consumer's equilibrium
In economics the term equilibrium refers to a point where the position is stable and changelessness. Consumer equilibrium is a state where a consumer derives maximum satisfaction by consuming all the commodities of his given stock without changing his income and price of the good/commodity. If the total satisfaction is equal to total expenditure of a person, then it is called as consumer equilibrium. A consumer attains equilibrium when his maximum satisfaction is equal to his overall expenditure on that commodities. When his satisfaction is more than expenditure, It is called as consumer surplus.
mux/px=muy/py...
Consumer’s Surplus = Willingness to pay - Actual pay
Note: here the given income of the consumer and prices of goods remains constant.
Indifference curve (Basic concept in consumer behaviour)
Indifference curve IC, It is a graphical presentation which shows the total satisfaction of a consumer which is gained by consuming of two goods/commodities of different combinations. It explains that the satisfaction gained from all commodities is same. The consumer is indifferent between all combinations because he can choose between 2 goods by following his preferences. It is a graph which shows the locus of 2 points each representing a combination of two different goods which gives equal satisfaction.Iso-utility curve
Indifference schedule
It is a table or tabulation, tabular form data which show the values of all goods of different combinations which gives equal or same level of satisfaction to the consumer. An indifference curve is always drawn or made with the basis of indifference schedule (data).
Indifference map
It is a set of indifference curves which are drawn to represent different income levels is called as indifference map. arranging different IC curves in a same diagram for close analysis is called as Indifference map.
Price consumption curve (PCC)
It is a curve which shows the changes of consumption of a consumer in relation to changes in price of a good while keeping other factors constant such as, Income of the consumer, tastes and preferences, etc. If price falls for good X the consumer will consume more of that commodity. It results in the changes of both Budget line and Indifference curve. Higher consumption curve shows higher indifference curve.
Income consumption curve (ICC)
It is also called as income effect. It shows the level of consumption of goods in relation to changes in his income. It is more positive when the income of the consumer increases which leads to higher consumption and satisfaction. Generally consumption will be low when his income is less and vice versa.
Substitution effect
It is the decrease in sales of a product due to behaviour of a consumer. If a producer increases the price of a product, generally the consumer shift to cheaper products. It always results in lesser consumption of that product in terms of consumer and lesser sales of the product in terms of producer. It is primarily happens due to change in the price of product. It highly applicable for rational consumer based on his choices.
Properties of indifference curve
(Note: Purpose of writing this topic is to understand the concept of indifference curve clearly).
An indifference Curve is the graphical representation of the combination of two goods, that gives equal satisfaction to the consumer.
- It slopes downwards from left to right: Inverse relationship between consumption of goods, Marginal rate of substitution.
- It is convex to the origin: Diminishing marginal rate of substitution and utility.
- Higher indifference curve represents higher satisfaction and vice versa: Higher utility/satisfaction.
- Cannot intersect to each other: No 2 commodities of a combination yield same satisfaction.
- It cannot touch either X or Y axis: Consumption of only 1 commodity by leaving other commodity is not possible because he purchases 2 commodities for consumption.
- Marginal rate of substitution: relationship between consumption of good X and Y.
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