2 consumer behaviour (utility )
TRANSCRIPT
Consumer’s Behaviour
Individual tries to satisfy his wants
Human wants are unlimited
Utility analysis – want satisfying efforts
Economics “utility means want satisfying power of a commodity”
“utility is the capacity of a commodity to satisfy human
want”. ……….. Prof. Stanley Jevons
Introduction
Relative concept
Subjective concept
Ethically neutral
Utility and usefulness are not same
Not same as pleasure
Utility differs from satisfaction
Not easily measurable
Depends upon intensity of want
It is the basis of demand
Features of Utility
Types of Utility
Form utility
Place utility
Time utility
Ownership utility
Service utility
Knowledge utility
Nature utility
Kashmir
Kokan
Concepts of Utility Concepts of Utility
Total Utility Marginal Utility
“Total Utility refers to the sum of utilities derived form the consumer from all units of commodity consumed”.Aggregate of utilities All successive units of commodity TU = ∑ MU / TUn = MU1 + MU2 + MU3
TU = Total Utility, MU = Marginal Utility
Total Utility
Total Utility ScheduleUnits of
CommodityTU Units
1 82 143 184 205 206 18 o X
Y
1 2 3 4 5 6
48
121620
units of commodity
Tota
l Util
ityDiagram
TU curve
“it refers to the additional utility derived by a consumer from additional unit of a commodity consumed. It is the utility from the last unit of a commodity”.MU is the addition made by last unit to TU. MUn = TUn-TU(n-1)
Total Utility
Total Utility ScheduleUnits of
CommodityMU Units
1 82 63 44 25 06 -2
o X
Y
1 2 3 4 5 6
2468
units of commodity
Mar
gina
l U
tility
Diagram
MU curve-2
Relationship Between TU & MU
Units of Commodity
TU Units
MU Units
1 8 82 14 63 18 44 20 25 20 06 18 -2
TU and MU Schedule
o X
Y
units of commodity
1 2 3 4 5 6
4
8
12
16
20
Mar
gina
l U
tility
Diagram
-2MU curve
TU curve
Point of Satiety
Disutility
Introduction
Behavior of the consumer
Relation to consumption
First Proposed : Mr. Gossen – Gossen’s first Law
Further explained : Prof. Alfred Marshall
Name of book : Principles of Economics – 1890
Basis of Law : satiability characteristics of human
wants
The law of Diminishing Marginal Utility
Dr. Alfred Marshall
Statement of Law : Other things being equal “The
additional benefit which a person derives from a given increase in
the stock of a thing diminishes with every increase in the stock that
he already has” ………Dr. Alfred Marshall
The law of Diminishing Marginal Utility
Units of Commodity
MU Units
1 82 63 44 25 06 -2
MU Schedule
o X
Y
1 2 3 4 5 6
2468
units of commodity
Mar
gina
l U
tility
Diagram
MU curve-2
Disutility
Assumptions
Homogeneity
Single use
Cardinal measurement
Rationality
Continuity
Reasonability
Constance
Divisibility
The law of Diminishing Marginal Utility
The law of Diminishing Marginal Utility
Exceptions
Hobbies
Misers
Drunkard
Music
Reading
Money
Limitations / Criticism
Unrealistic assumptions
Cardinal measurement
Indivisible goods
Constant marginal utility of money
A single want
The law of Diminishing Marginal Utility
AssumptionsHomogeneity
Single useCardinal measurement
Rationality Continuity
ReasonabilityConstance Divisibility
Very Testy
The law of Diminishing Marginal Utility
Theoretical importance Practical importance
Paradox of value
Universal Truth
Basis of law of demand
To Consumer
To the Government
To Producer
To Monopolist
For welfare Measure
Importance / Significance of the Law
Introduction :
Developed by : Alfred Marshall
Basis of Law : Three characteristics of wants –
comparable, substitutable & complementary
Statement of Law : other things being equal “A consumer gets maximum total utility from spending his income,
when the marginal utility derived from the last unit of money, spend
on each commodity tend to be equal”……….Alfred Marshall
law of Equi-Marginal Utility
law of Equi-Marginal Utility
Equi-Marginal Utility Schedule
Units of Com -modity
MU ‘A’
Ratio = MU ‘B’
Ratio = MU ‘C’
Ratio =
1 24 30 32
2 20 24 24
3 16 18 16
4 12 12 08
5 8 6 00
= = = MUm
law of Equi-Marginal UtilityConsumer expenditure
Commodity Units Price Amount Spent (Units X Price)
A 4 2 8B 3 3 9C 2 4 8
Total 25
= = = MUm
= = = MUm
6 = 6 = 6
TU derived = TUA → 24+20+16+12=72
TUB → 30+24+18+12 units
TUC → 32+24 = 56 units
Total utility 200 units
Assumptions
Measured cardinally
Rationality
No change in income
Homogeneity
Constancy of money
Knows MU schedule &
price
Exceptions
Unrealistic assumption
Change in income
Other exceptions
law of Equi-Marginal Utility