Chapter 4 Flashcards
It is a branch of microeconomics, studying how people decide to spend their money on based on their preferences and budget
constraints.
Consumer Behavior
We rely on the foundation that individual will choose goods
and services that deem to value the most.
Analysis of Consumer Behavior
It denotes satisfaction, a subjective pleasure that
individual can derive from consuming goods and
services.
Utility
It can be described in a
straightforward manner. “The consumer prefer the bundle of goods that he can afford.”
Economic Theory of Consumer
These are the factors that make an individual decide what bundle of goods to consume.
Taste and Preference and Income
It defines what you like about the good, and the utility or satisfaction you receive when consuming various goods.
Taste and Preference
It defines what bundle of goods and the quantity an individual can afford.
The price of the goods and an individual’s income
It is defined as the satisfaction derived from the consumption of a commodity which determines consumption and demand behavior. It is the maximum or optimum satisfaction upon consuming.
Utility
It is the technical term for satisfaction. It denotes
satisfaction, a subjective pleasure that an individual
can derive from consuming a good or services.
Utility
The law behind the downward sloping demand curve is
explained by the
theory of consumer behavior
It means the satisfaction obtained from the goods and
services that consumers consumes.
Utility
It refers to the total amount of satisfaction one obtains from the consumption.
Total Utility
TU (Total Utility) = Function of Q (Consumption)
It is the additional satisfaction obtained from the consumption of an additional unit of goods and services.
Mathematically, it is the slope of the TU.
The formula is as follows:
Marginal Utility
MU = ∆TU / ∆Q
It states that successive consumption of the same good and service increases the total utility (TU), but at some point the total utility will reach maximum and beyond this point, the total utility diminishes.
Law of Diminishing Marginal Utility
Assumption about consumer’s behavior:
▸ Consumers are able to rank their preferences for the
goods and services.
▸ Consumers are consistent and transitive.
▸ Consumers prefer “more” of the goods than “less” of it.
If Total Utility (TU) is maximized with regard to their income, it means that they are in _____________; or spending the last peso of their income on two goods until the utility or satisfaction derived in consuming both goods in the same.
equilibrium
Mathematically, this can be expressed as follows:
Subject to the following constraint:
MUx = MUy
Px Py
&
PxQx + PyQy = M (Income)
It is the curve which shows different combinations of two goods which yield the same level of satisfaction.
Indifference Curve
The following are the characteristics of the indifference curve:
▸ They slope downward and towards the right
▸ They do not intersect
▸ They are convex in shape
It shows the infinite point of combinations in the consumption of two commodities that the same
budget can buy at constant prices.
Budget Line
▸ Budget line shift to RIGHT means ___________
▸ Budget line shift to LEFT means ___________
INCREASE, DECREASE
Optimum combination of commodities that a given budget can purchase is obtained at the ____________
tangency of the budget line and indifference curve
