Theory of Consumer Behavior

Part 4 †Theory of Consumer Behavior Economics 11 †UPLB Prepared by T. B. Paris, Jr. December 11, 2007 Theory of Consumer Behavior ? ? ? Valuable for understanding the interest side of the market. Utility †measure of fulfillment got from the utilization of a ware †¦. estimation units ? utils Utility ideas ? ? cardinal utility †accept that we can allot values for utility, (Jevons, Walras, and Marshall). E. g. , get 100 utils from eating a cut of pizza ordinal utility methodology †doesn't appoint values, rather works with a positioning of inclinations. Pareto, Hicks, Slutsky) Total utility and negligible utility ? ? All out utility (TU) †the general degree of fulfillment got from devouring a decent or administration Marginal utility (MU) extra fulfillment that an individual gets from expending an extra unit of a decent or administration. ? TU MU = ? Q Total utility and minor utility Example (Table 4. 1): Q 0 1 2 3 4 5 6 7 TU 0 20 27 32 35 34 30 36 MU à ¢â‚¬20 7 5 3 0 - 1 - 4 ? ? ? ? TU, when all is said in done, increments with Q sooner or later, TU can begin falling with Q see Q = 6) If TU is expanding, MU > 0 From Q = 1 onwards, MU is declining ? guideline of lessening minimal utility ? As increasingly more of a decent are devoured, the procedure of utilization will (sooner or later) yield littler and littler augmentations to utility Total Utility Curve TU 35 Total utility(in utils) 30 25 20 15 10 5 0 1 2 3 4 5 Quantity 6 Q Figure 4. 1 Marginal Utility Curve MU Marginal utility (in utils) 20 15 10 5 0 - 5 Figure 4. 2 1 2 3 4 5 6 Quantity Q Consumer Equilibrium ? ?Up until this point, we have expected that any measure of products and enterprises are consistently accessible for utilization in actuality, shoppers face limitations (salary and costs): Limited buyers pay or financial plan ? Products can be acquired at a cost ? Some streamlining suppositions ? ? ? ? Consumer’s objective: to expand his/her utility subject to s alary requirement 2 products (X, Y) Prices Px, Py are fixed Consumer’s pay (I) is given Consumer Equilibrium ? Negligible utility per peso ? extra utility got from spending the following peso on the great MU per peso = PConsumer Equilibrium ? Upgrading condition: MU X MU Y = PX PY ? In the event that MU X MU Y > PX PY ? spend more on great X and less of Y Simple Illustration ? Assume: X = fishball Y = siomai ? Expect: PX = 2 PY = 10 Numerical Illustration Qx 1 2 3 4 5 6 TUX 30 39 45 50 54 56 MUX 30 9 6 5 4 2 MUx Px 15 4. 5 3 2. 5 2 1 QY 1 2 3 4 5 6 TUY 50 105 148 178 198 213 MUY 50 55 43 30 20 15 MUy Py 5. 5 4. 3 2 1. 5 ? ? 2 potential ideal positions Combination A: ? X = 3 and Y = 4 ? TU = TUX + TUY = 45 + 178 = 223 ? Mix B: ? ? X = 5 and Y = 5 TU = TUX + TUY = 54 + 198 = 252 ? Nearness of 2 potential harmony positions recommends that we have to think about salary. To do so let us look at how much every purchaser spends for every blend. Use per blend ? ? Complete consumpt ion = PX X + PY Y Combination A: 3(2) + 4(10) = 46 ? Mix B: 5(2) + 5(10) = 60 ? Situations: If consumer’s salary = 46, at that point the ideal is given by blend A. .†¦Combination B isn't moderate ? In the event that the consumer’s pay = 60, at that point the ideal is given by Combination B†¦. Blend An is reasonable however it yields a lower level of utility ? end