Theory of Consumer Behaviour
Objectives
After going through this chapter you shall be able to understand the following concepts
Consumer Behaviour Theory- Ordinal Approach and Cardinal Approach
Total Utility, Marginal Utility, Relationship between Total Utility and Marginal Utility
Law of Diminishing Marginal Utility
Utility Analysis and Consumer Equilibrium- One Good Case and Two Goods Case
Consumer- Who is a Consumer?
Anyone who purchases and consumes any goods and services for the satisfaction of his/her wants is called a consumer. A consumer spends the money available to him for purchasing different goods and services with the sole motive of attaining the highest possible level of satisfaction.
Consumer Behaviour Theory
Under the Consumer Behaviour Theory, we examine the behaviour of a rational consumer in the market of goods and services. This theory basically analysis the decision making process of a consumer. It examines how a consumer makes choice among different available goods and services with his/her fixed income and given market prices of the goods and services. In Traditional Consumer Behaviour Theory, it is assumed that a consumer has complete knowledge of all the available goods and services, their respective prices and all other relevant information required to decide among different alternatives. In other words, the essence of consumer behaviour theory is to analyse how a consumer chooses among different available goods and services, with his given income and prices of goods and services, in order to achieve the highest possible satisfaction level.
It should be noted that in order to attain the highest possible level of satisfaction, a consumer must be able to compare the satisfaction derived from the consumption of various goods and services that he can purchase with his/her income. The question then arises is that how will a consumer do so. There are two approaches to answer this question- The Cardinal Approach and the Ordinal Approach.
The
After going through this chapter you shall be able to understand the following concepts
Consumer Behaviour Theory- Ordinal Approach and Cardinal Approach
Total Utility, Marginal Utility, Relationship between Total Utility and Marginal Utility
Law of Diminishing Marginal Utility
Utility Analysis and Consumer Equilibrium- One Good Case and Two Goods Case
Consumer- Who is a Consumer?
Anyone who purchases and consumes any goods and services for the satisfaction of his/her wants is called a consumer. A consumer spends the money available to him for purchasing different goods and services with the sole motive of attaining the highest possible level of satisfaction.
Consumer Behaviour Theory
Under the Consumer Behaviour Theory, we examine the behaviour of a rational consumer in the market of goods and services. This theory basically analysis the decision making process of a consumer. It examines how a consumer makes choice among different available goods and services with his/her fixed income and given market prices of the goods and services. In Traditional Consumer Behaviour Theory, it is assumed that a consumer has complete knowledge of all the available goods and services, their respective prices and all other relevant information required to decide among different alternatives. In other words, the essence of consumer behaviour theory is to analyse how a consumer chooses among different available goods and services, with his given income and prices of goods and services, in order to achieve the highest possible satisfaction level.
It should be noted that in order to attain the highest possible level of satisfaction, a consumer must be able to compare the satisfaction derived from the consumption of various goods and services that he can purchase with his/her income. The question then arises is that how will a consumer do so. There are two approaches to answer this question- The Cardinal Approach and the Ordinal Approach.
The