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Case On Consumer Behavior

This document discusses consumer behavior theory and indifference curve analysis. It explains that consumers have preferences over goods they can afford given their opportunities and budget. Consumer preferences satisfy properties like completeness, more is better, diminishing marginal rate of substitution, and transitivity. The budget constraint limits the combinations of goods a consumer can purchase. Consumers seek to maximize utility by choosing the highest indifference curve possible within their budget set. Indifference curve analysis can be used to understand consumer choices when faced with options like buy one get one free deals.

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Zayed Mohammad Johny
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30 views

Case On Consumer Behavior

This document discusses consumer behavior theory and indifference curve analysis. It explains that consumers have preferences over goods they can afford given their opportunities and budget. Consumer preferences satisfy properties like completeness, more is better, diminishing marginal rate of substitution, and transitivity. The budget constraint limits the combinations of goods a consumer can purchase. Consumers seek to maximize utility by choosing the highest indifference curve possible within their budget set. Indifference curve analysis can be used to understand consumer choices when faced with options like buy one get one free deals.

Uploaded by

Zayed Mohammad Johny
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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CASE ON CONSUMER

BEHAVIOR
BUS 525

Managerial Economics

THEORY OF CONSUMER
BEHAVIOUR
A consumer is an individual who purchases
goods and services from firms for the
purpose of consumption.
A manager should understand the behavior
of individuals as they generate demand for
products your firm produce
Consumer behavior characterized by

Consumer Opportunities and


Consumer Preferences

Opportunities represent what goods and


services consumers can afford to consume
Preferences tell which of these goods will 2
be consumed

Consumer preference satisfy four basic properties


Property 1: Completeness ( Consumers can rank
their preferences)
for any two bundles consist of good X and Y, say A and
B, it is true either
or A-B
A B , B A

Property 2: More is better (Nonsatiation)


if bundle A has as much as of every good as bundle B
and more of some good, bundle A is preferred to bundle
B

Property 3: Diminishing Marginal Rate of


Substitution
Indifference curves are convex to the origin. As
consumer gets more of one good willingness to sacrifice
other good decline

Property 4: Transitivity ( preferences would be


A Bconsistent)
and B C thenA C
3
for any three bundles, A, B and C, if
Similarly, if A~B and B~C, then A~C.

More is
Better
Y

More is Better and


Transitivity
implies IC do not
intersect

Y
A

C
6

III

II

X
1

BUDGET
CONSTRAINT
Budget constraint restricts consumers opportunities and
choice, thus compel to choose a bundle in the
Pxbudget
X PyY set
M
Budget set gives combinations of good X and Y
affordable to the consumer
If consumer spends his entire income on the two goods
budget set can be written
asY M
PX P

Y
M
Py

M
P
x X
Py
Py

P
Bx
C Py

5
M
Px

CONSUMER
EQUILIBRIUM

Consumer

chooses the equilibrium bundle


that maximizes his utility, or satisfaction.
He reaches highest indifference curve within
his budget constraint or affordable
combinations of two goods.
Y
M
Py

Consumer
Equilibrium

A
B

III
II

Budget
Set

6
M
Px

APPLICATIONS OF INDIFFERENCE
CURVE ANALYSIS

Choices by Consumers
Buy One, Get One Free
Other goods
(Y)
C
D

II
I

Pizza
(X)

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