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    MasoodAhmed - 1337 - 15759 - 2 - Consumer Behavior Fall 2019

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    Urooj Mustafa
    This document discusses key concepts in consumer behavior including: 1) The law of diminishing marginal utility, which states that the additional satisfaction a consumer receives from consuming additional units of a good declines as consumption increases. 2) Definitions of utility, total utility, and marginal utility. Total utility is the total satisfaction from consuming a quantity of goods, while marginal utility is the extra satisfaction from an additional unit. 3) Consumers aim to maximize total utility subject to a budget constraint by allocating spending so the marginal utility per dollar is equal across goods. 4) A demand curve can be derived by plotting quantities demanded at different prices. Price changes impact demand through income and substitution effects.

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    MasoodAhmed - 1337 - 15759 - 2 - Consumer Behavior Fall 2019

    Uploaded by

    Urooj Mustafa
    20 views10 pages
    This document discusses key concepts in consumer behavior including: 1) The law of diminishing marginal utility, which states that the additional satisfaction a consumer receives from consuming additional units of a good declines as consumption increases. 2) Definitions of utility, total utility, and marginal utility. Total utility is the total satisfaction from consuming a quantity of goods, while marginal utility is the extra satisfaction from an additional unit. 3) Consumers aim to maximize total utility subject to a budget constraint by allocating spending so the marginal utility per dollar is equal across goods. 4) A demand curve can be derived by plotting quantities demanded at different prices. Price changes impact demand through income and substitution effects.

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    MasoodAhmed_1337_15759_2_Consumer Behavior Fall 2019

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    This document discusses key concepts in consumer behavior including: 1) The law of diminishing marginal utility, which states that the additional satisfaction a consumer receives from consuming additional units of a good declines as consumption increases. 2) Definitions of utility, total utility, and marginal utility. Total utility is the total satisfaction from consuming a quantity of goods, while marginal utility is the extra satisfaction from an additional unit. 3) Consumers aim to maximize total utility subject to a budget constraint by allocating spending so the marginal utility per dollar is equal across goods. 4) A demand curve can be derived by plotting quantities demanded at different prices. Price changes impact demand through income and substitution effects.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    20 views10 pages

    MasoodAhmed - 1337 - 15759 - 2 - Consumer Behavior Fall 2019

    Uploaded by

    Urooj Mustafa
    This document discusses key concepts in consumer behavior including: 1) The law of diminishing marginal utility, which states that the additional satisfaction a consumer receives from consuming additional units of a good declines as consumption increases. 2) Definitions of utility, total utility, and marginal utility. Total utility is the total satisfaction from consuming a quantity of goods, while marginal utility is the extra satisfaction from an additional unit. 3) Consumers aim to maximize total utility subject to a budget constraint by allocating spending so the marginal utility per dollar is equal across goods. 4) A demand curve can be derived by plotting quantities demanded at different prices. Price changes impact demand through income and substitution effects.

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    You are on page 1of 10

    Consumer Behavior

    Masood Ahmed
    MBA
    Fall 2019
    SZABIST
    Law of Diminishing Marginal Utility
     Added satisfaction declines as a consumer
    acquires additional units of a given product.
    Terminology
     Utility is want satisfying power.
    ◦ The utility of a good or service is the satisfaction or
    pleasure one gets from consuming it.
     Characteristics of Utility Concept:
    ◦ Utility and Usefulness are not synonymous.

    ◦ Utility is subjective
    ◦ Utility is difficult to quantify. (Utils: Unit of Utility)
    Total Utility and Marginal Utility
     Total Utility is the total amount of satisfaction
    or pleasure a person derives from consuming
    some specific quantity-for example 10 units
    of goods and service.
     Marginal Utility is the extra satisfaction a

    consumer realizes from an additional unit of


    that product- for example from the 11th unit.
    Total Utility and Marginal Utility
    Total Utility

    30

    Total Utility (Utils)


    (1) (2) (3)
    Tacos Total Marginal
    TU
    Consumed Utility, Utility,
    Per Meal Utils Utils 20

    0 0] 10 10
    1 10]
    8
    2 18] 0
    6 1 2 3 4 5 6 7
    3 24
    ] 4
    Marginal Utility (Utils)

    4 28
    ] 2 10
    5 30
    ] 0 8
    6 30
    ] -2
    6
    4
    7 28 2
    0
    -2
    1 2 3 4 5 6 7 MU

    LO1 6-5
    Theory of Consumer Behavior

    Rational behavior ( ).
    Maximize total utility

    Preferences (Clear-cut preferences for certain of


    )
    the goods and services

    Budget constraint (Limited amount of money


    income)

    Prices(Every good carries a price tag)

    LO2 6-6
    Utility Maximizing Rule
    Consumer allocates his or her
    income so that the last dollar spent
    on each product yields the same
    amount of extra (marginal) utility
    Algebraically
    MU of product A MU of product B
    Price of A Price=of B

    LO2 6-7
    Deriving the Demand Curve

    $2

    Price Per Quantity

    Price of Orange
    Orange Demanded

    $2 4
    1 6
    $1

    DO
    0
    4 6
    Quantity Demanded of Oranges

    LO3 6-9
    Income and Substitution Effects

    Income effect
    • The impact that a price change
    has on a consumer’s real income
    Substitution effect
    • The impact that a change in a
    product’s price has on its relative
    expensiveness

    LO4 6-10

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