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The idea of Consumer Behavior – the Theory of Utility

 Essay regarding The Theory of Consumer Habit  the Theory of Power

Topic 6 - The Theory of Customer Behavior – the theory of utility •The theory of consumer actions may be analysed by either utility theory and / or not caring curve research. •Note: this course only requires students to be aware of utility theory. Indifference competition analysis is undertaken in year 2 and is not only a requirement of this program Basic Principles from the theory of Consumer Actions

•Consumers are logical optimisers

•Consumers seek to maximise total utility

•Utility can be achieved by the consumption of goods and services •Utility / consumption is dependent as well as constrained by •budget or income

•prices of goods and services

Power Theory

•Utility is described as the fulfillment or pleasure which someone obtains coming from obtaining and consuming an excellent or assistance. •Consumers are assumed to become rational optimisers seeking to increase total utility. Ordinal Utility

•Satisfaction levels which may be ranked but not specifically measured Primary Utility

•Utility which may be tested.

➢Much of the theory of consumer conduct is based on ordinal utility Total Utility

•is thought as the total satisfaction which consumers gain in the consumption of any particular good or service or mixture of goods and services. •The unit of measurement of utility can be utils

Minor utility

•is understood to be the additional power or fulfillment gained by obtaining and consuming another unit of a particular great or service. •Marginal utility is also assessed in utils.

•Marginal energy is tested by the next formula:

MUX = ΔTU

ΔX

•X represents the amount consumed of the particular product •An sort of total and marginal utility

Qty of Product Back button ConsumedTotal Utility (utils)Marginal Utility (Utils) 00-

188

2146

3184

4202

5200

Total Utility

Attributes of total and little utility

•TU tends to enhance as usage increases

•TU tends to enhance at a decreasing price as consumption increases •MU tends to reduce as consumption increases

•Diminishing MU explains the lowered rate of growth of SU The Law of Diminishing Minor Utility

•Consumers will certainly derive lower levels of electricity from the consumption of additional devices of a particular good or service. Marginal Utility per Dollar Spent

•In attempting to maximise TU customers make choices as to which in turn combination of products will deliver the highest level of utility within income and price restrictions. •To associated with MU of differently listed products identical it is necessary to calculate the marginal utility per dollar put in. •MU every dollar put in is worked out by:

MUX

PX

•An example: MU per money spent. one particular product. 2 Prices

Energy Maximisation (optimization) – home equilibrium •Utility is maximised when the MU per last dollar used on one method equal to the MU every last money spent on all other goods. •Utility is consequently maximised when the:

•MU every dollar of Product A = MU per buck of merchandise B •An example of electricity maximization

Utility Maximisation (optimization)

•Occurs at the point where:

•MU per buck of Product X sama dengan MU per dollar of Product Con •The equilibrium MU per dollar is 8

•The consumer might purchase 2 units of product By and three or more units of product Con to maximise total utility •At the sense of balance the consumer might realise 2920 utils •An income of $170 is required to realise electricity maximisation

Case in point 2: Prices of Product Y increases ($40 to $100)

•When the price of Merchandise Y increases consumers realize less MU per money from the ingestion of this product. •Consumers will certainly switch via Product Con to Merchandise X in order to maximise SU. •To reestablish equilibrium buyers will now order less of product Con and more of product X •The fresh equilibrium takes place at the MU per dollar of 4

•Consumers will maximise SU by...

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