Consumer Behaviour

Question 1

Define Utility

Answer 1

It can be seen as the level of satisfaction derived from consuming a commodity.

Question 2

Mention the measurements of utility

Answer 2

• Cardinalist Approach
• Ordinalist Approach

Question 3

Briefly explain the Cardinalist approach

Answer 3

It is a school of thought that says that utility can be measured i.e you can calculate the amount of utils you can derive from a commodity and decide on the commodity to choose

Question 4

Mention the Assumptions of the Cardinalist Approach

Answer 4

1. Rationality: They believe consumers want more of everything
2. Cardinalist: Utility is measurable
3. Total utility: The more you consume a commodity the more your satisfaction increases.
4. Diminishing Marginal utility: You will consume a commodity to the Certain point that the commodity will not satisfy you again.
5. Two goods are as good as themselves

Question 5

Briefly explain the Ordinalist approach

Answer 5

This disagrees with the Cardinalist that utility is measurable. They believe that utility is not measurable. They also believe that a consumer does not need to know the amount of utils derived from consuming one commodity but can only prefer one commodity to another based on taste and preference

Question 6

Mention the Assumptions of the Ordinalist Approach

Answer 6

1. Rationality: They believe consumers want more of everything
2. Ordinality: Utility is not measurable but depends on taste and preference
3. Comparison: Compare the 2 goods in question
4. Consistency: You have to be consistence in your preference/ choice
5. Transitivity: It means taste or preference is ranked