Unit 1: Theory of Consumer Behavior: Unit Introduction

Question 1

_ is a decision making unit (an individual or a household) who uses or consumes a commodity or service.

Answer 1

A consumer

Question 2

_ is concerned with how a consumer decides on the basket of goods and services he/she consumes in order to maximize his/her satisfaction.

Answer 2

The theory of consumer behavior

Question 3

The theory of consumer behavior, set out with the following important assumptions;

Answer 3

• The consumer has a limited income.
• The consumer is assumed to be rational. Given the consumer’s income and the market prices of the commodities, he/she spends the income on goods and services that give the highest possible satisfaction or utility.
• The consumer has relevant information to make a decision, is aware of his or her income, and is aware of the commodities available and their prices.