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Unformatted text preview: THEORY OF CONSUMER BEHAVIOR APPROACHES: 1. Utility Approach 2. Indifference curve approach UTILITY APPROACH Utility = satisfaction that a consumer receives from whatever goods and services he consumes Classification of utility: 1. Cardinal utility – a utility assumed to be measurable in principle 2. Ordinal utility – utility is in order of preference Total Utility and Marginal Utility * examining the relationship between utility and quantity* Quantity of ice cream in cups Marginal Per day Total Utility Utility 1 10 2 18 3 24 4 28 5 30 6 30 7 28 8 25 Total utility = entire amount of satisfaction a consumer receives from consuming it at various rates Marginal utility = change in total utility resulting from a 1-unit change in consumption per unit of time Change in total utility Change in quantity Law of Diminishing Marginal Utility – as a consumer acquires more units of commodity, his total utility increases but at a diminishing rate INDIFFERENCE CURVE APPROACH An alternative mode of individual demand analysis not predicted on...
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- Spring '10
- Utility, indifference curve approach