CPT Chapter Theory of Consumer Behaviour

With Bharat Galani.Duration:3hrs 20min

Notes

Index

What is Theory of Consumer Behaviour?
Utility analysis
1. Marginal Utility Analysis (Cardinal)
-Law of Diminishing Marginal Utility
-Law of Equi Marginal Utility
2. Consumer Surplus
3. Indifference Curve Analysis (Ordinal)
-Indifference Curves & Budget Line
-Consumer Equilibrium

Utility

Want satisfying power of a commodity
Subjective
Not same as usefulness
Ethically neutral
Anticipated satisfaction

Marginal Utility

I. Law of Diminishing Marginal Utility
Proposition
Assumptions
MU & TU
Schedule & Graphical Representation
limitations
II.Law of Equi Marginal Utility
III.Consumer Surplus

Assumption of Marginal Utility Analysis

Cardinal Measurement of Utility
Constancy of Marginal Utility of Money
Hypothesis of Independent Utility

Limitations of Law of Diminishing Marginal Utility

Homogenous goods
Standard units of consumption
Continuous consumption
Fails in case of Prestigious goods
Case of Related goods

Indifference Curve Analysis

Hicks & Allen
Ordinal
Iso-Utility Curve

Assumptions
Consumer rational & full information
Consumer capable of ranking
Consistent consumption pattern

Summary Properties of IC

Slopes downward to the right
Convex to the origin
Never intersect each other
Higher IC represents a higher level of satisfaction than the lower IC
Will not touch either axis

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Law of Demand and Elasticity of Demand

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