Group 3 Chapter 4 Consumer Behavior

CHAPTER 4
CONSUMER
BEHAVIOR
GROUP 3
Objectives:
at the end of this chapter, you should be
able to:

define the concept of utility;

discuss the assumption of consumer
theory;
discuss the indifference curve as a
measure of utility ; and
illustrate an indifference map and
budget line.
Wh a t i s c o n s u m e r
b e h a v i o r ?
is th e a na ly s is o f h ow
co n s u m er s
a ke d e c i sio n s a b o ut
m
uy , w h e n to b u y it,
what to b
and how t o d o so .
Consumer theory
argues that individual consumption
decisions are always made because
people desire to maximize their
satisfaction from consuming various
goods and services.
MEASURING UTILITY
Why do companies conduct surveys?
To know the level of
consumer's satisfaction
CONSUMPTION BUNDLES - are certain combinations of two
commodities that will yield them a certain level of utility.
INDIFFERENCE CURVE - shows combinitions of two

commodities which, when consumed, will yield the same
level of satisfaction.

Utility Function
- shows an individual's value of the utility
attained from consuming each conceivable
bundle of goods.

CARDINAL VALUES - based on the number of "util" or the

unit of satisfaction.
Law of Diminishing
Marginal Utility
- this law argues that as you increase your
intake of a certain commodity, you will have a
declining satisfaction on the next units of the
same commodity that you would consume.

ORDINAL VALUES - based on rankings.

MARGINAL RATE
OF SUBSTITUTION
(MRS)
maximum amount of a good

that a consumer is willing to
give up obtaining one
additional unit of another
good
3 PROPERTIES OF CONSUMER
PREFERENCES
Completeness
every pair of consumption
bundles (X and Y).
Transitivity
described by having
commodities X, Y, and Z
Non-Satiation
simply means more is better
INDIFFERENCE MAP
an indifference map is a graph containing a set of difference
curves showing two commodities among which describe a
person's preferences.
on an indifference map, a consumer has an infinite
number of indifference curves that depict each level of their
satisfaction.
The Budget Line
budget line is a graph that shows the combination
of goods or services of a person, where the total
amount of money spent is proportionate to his/her
income.
The slope of the budget line can be measured by getting the changes from
one basket of good to another. Let us set food as B1 and household items
as H1. Thus, if we want to know the change, let us say frpm point B to
point C, we can do the following:
Two possible scenarios could happen:

1. income could increase
2. prices could increase
CONSUMER'S CHOICE
https://globalyouth.wharton.upenn.edu/glossary/consumer-choice/
To maximize utility of an individual, it must satisfy two conditions:

The decision must lie on the budget line;
The decision must lie on the indifference that is depicting the most
preferred combination of the consumer.
Points below represents the quantities of commodities X and Y that Sassa
will consume yielding 100 utils of satisfaction level(for some bases).
POINT 1 - purchased at the

highest possible budget of
Php5000.

POINT 2 - which can be

purchased at a lower possible
budget of Php4000

POINT 3 - which can be

purchased at a lowest possible
budget of Php3000

Points below represents the combination of commodities X and Y that can

be purchased based on a given budget
Point 1 - with a given budget of Php5000

which when consumed will give a level of
satisfaction of 100 utils (the lowest).
which when consumed will give a level of a
higher satisfaction of 200 utils.
which when consumed will give a level of the
higher satisfaction of 300 utils.
ENGEL CURVE
describes how household
expenditure on a particular good or
service varies with household
income.
Engel curves relate the quantity of

good consumed to income. If the
good is a normal good, the Engel
curve is upward sloping. If the
good is an inferior good, the Engel
curve is downward sloping a graph
text
We can see that the Income Consumption
line was formed from indifferences curve of
the individual with different budget line.
Looking at the slope, it is in increasing
tread. This is because M3 is the highest
compared to M2 and M1.

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CHAPTER 4

define the concept of utility;

INDIFFERENCE CURVE - shows combinitions of two

CARDINAL VALUES - based on the number of "util" or the

ORDINAL VALUES - based on rankings.

maximum amount of a good

Two possible scenarios could happen:

To maximize utility of an individual, it must satisfy two conditions:

POINT 1 - purchased at the

POINT 2 - which can be

POINT 3 - which can be

Points below represents the combination of commodities X and Y that can

Point 1 - with a given budget of Php5000

Engel curves relate the quantity of

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