Consumer Behaviour Demand Curves Utility Theory 1. Understanding Utility: Total and Marginal 2. Utility Maximization: Equalizing Marginal Utility per Rand (MU/PA = MU/PB) Def: Satisfaction that person gets from consumption of goods and services. Products are bought because it gives satisfaction / utility. Usefulness Measurable (“utils”) Comparison between products No comparison between consumers Def: Total satisfaction obtained from the consumption of a product Def: The extra satisfaction that is obtained due to a one unit increase in the quantity of the product consumed. In other words, the change in Total Utility that results from the consumption of one more unit Choc Total Marginal MU/P consumed Utility Utility 0 0 - - 1 54 54 27 2 102 48 24 3 144 42 21 4 180 36 18 5 210 30 15 6 234 24 12 7 252 18 9 8 264 12 6 Ifa consumer consumes more and more of a certain product, ceteris paribus, the marginal utility of that product will initially rise, reach a maximum and then decrease. Total utility will reach a maximum where marginal utility = 0 Assumption of rationality of consumers Optimal utilization of budget Restrictions: Income, tastes and preferences & prices of products Maximum satisfaction is obtained from limited means when: MU A MU B = PA PB