Chapter6 - MANAGERIAL ECONOMICS An Analysis of Business...

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1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
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2 Chapter 6: Consumer Behaviour Objectives: After studying the chapter, you should understand: 1. The purpose of the economic theory of consumer behaviour 2. The difference between that theory and Consumer Behaviour in Marketing 3. The main approaches to consumer behaviour in Economics
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3 Economic Theories of Consumer Behaviour ARE NOT rich and highly descriptive analyses of the links between consumers’ personal, social and psychological characteristics and their purchasing behaviour look for that in the Marketing treatment of the issue They ARE abstract and logical analyses of what is meant by ‘rational choice behaviour’ and the implications of rational behaviour for instance, is it necessarily true that a rational consumer will buy more of a product as its price falls? begin by defining ‘rational choice’ and then follow through the consequences
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4 The Main Approaches Are: Utility Theory Indifference Analysis Revealed Preference The Characteristics Approach
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5 Utility Theory Consumers seek to maximise their UTILITY , which increases as they consumer more ‘goods’ and decreases as they consumer more ‘bads’ As a consumer has more of a ‘good’, the extra (marginal) utility they enjoy from each successive extra unit of the good declines the principle of diminishing marginal utiity A utility-maximising consumer will purchase a combination of goods such that the extra utility acquired per $ or cent, £ or penny, is the same for every good OR: the ratio of the marginal utilities is equal to the ratio of the prices
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Chapter6 - MANAGERIAL ECONOMICS An Analysis of Business...

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