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    Consumer Behavior - Chapter 4

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    Roberto Aguila
    The document discusses concepts in consumer choice theory including: 1) The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases. 2) Total utility increases with consumption at first but eventually decreases when marginal utility turns negative. 3) Indifference curves and budget constraints which determine the optimal combination of goods that maximizes utility. 4) The equimarginal principle which states optimal choice occurs where the marginal rates of substitution between goods are equal.

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    Consumer Behavior - Chapter 4

    Uploaded by

    Roberto Aguila
    87 views16 pages
    The document discusses concepts in consumer choice theory including: 1) The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases. 2) Total utility increases with consumption at first but eventually decreases when marginal utility turns negative. 3) Indifference curves and budget constraints which determine the optimal combination of goods that maximizes utility. 4) The equimarginal principle which states optimal choice occurs where the marginal rates of substitution between goods are equal.

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    Consumer Behavior - Chapter 4

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    The document discusses concepts in consumer choice theory including: 1) The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases. 2) Total utility increases with consumption at first but eventually decreases when marginal utility turns negative. 3) Indifference curves and budget constraints which determine the optimal combination of goods that maximizes utility. 4) The equimarginal principle which states optimal choice occurs where the marginal rates of substitution between goods are equal.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    87 views16 pages

    Consumer Behavior - Chapter 4

    Uploaded by

    Roberto Aguila
    The document discusses concepts in consumer choice theory including: 1) The law of diminishing marginal utility which states that as consumption of a good increases, the marginal utility from each additional unit decreases. 2) Total utility increases with consumption at first but eventually decreases when marginal utility turns negative. 3) Indifference curves and budget constraints which determine the optimal combination of goods that maximizes utility. 4) The equimarginal principle which states optimal choice occurs where the marginal rates of substitution between goods are equal.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 16

    CHAPTER 4

    In economics, this want-satisfying


    ability is called utility.
    The law of diminishing marginal
    theory states that as a consumer uses
    up a good or a service, he/she tends
    to get less satisfied with it through
    time. The greatest satisfaction is
    experienced by consuming the first
    quantity of the said good.
    SIOMAI TABLE
    QUANTITY TU (Total Utility) MU (Marginal Utility)
    1 10 -
    2 19 9
    3 26 7
    4 30 4
    5 30 0
    6 26 -4
    35

    30

    25
    Total Utility (utils)

    20

    15
    TU
    10

    0
    1 2 3 4 5 6 7
    QUANTITY

    Utility Curve
    10

    6
    Marginal Utility (Utils)

    2
    MU
    0
    1 2 3 4 5 6 7
    -2

    -4

    -6

    -8
    QUANTITY
    Total Utility, in general, increases as more
    and more units of product are consumed.
    However, at some point, when the marginal
    utility is less than 0, total utility decreases
    Marginal utility diminishes as the
    consumption of the same good becomes
    higher.
    Is the graphical representation of the
    amount of goods a consumer can
    afford that depends on the goods
    price and the buyers income.
    BUDGET LINE
    Product Y

    BL
    Product X
    Is a line concentrating a consumers
    responsiveness or indifference based
    on a combination of two products.
    INDIFFERENCE CURVE
    Product Y

    IC

    Product X
    Optimum Combination and the
    Marginal Rate of Substitution
    If we combine the
    budget line and
    the indifference
    curve the
    optimum
    combination is the
    Product Y

    highest
    indifference curve
    that touches the
    budget line at a
    point of tangency. Product X
    Equimarginal Principle states that the
    consumer will get maximum satisfaction
    from goods X and Y when the MU of the last
    peso spent on good X is exactly the same
    as the MU of the last peso spent on good Y,
    income being fixed.
    There are many factors that affect the
    consumer choices. Consumption of goods
    and services constrained by the income of
    the consumer and the price of commodity.
    In this respect and income effect happen
    when the budget line shifted to the right
    brought about by an increase in the
    consumers budget or a price rollback of
    goods X and Y.
    Also known as the water diamond theory of
    Adam Smith. This theory involves
    comparing the benefit we get from water
    with what we get from diamonds.

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