Theories of Consumer Behavior

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Comparative analysis of two current consumer behavior theories

Comparative analysis of two current consumer behavior theories

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  • 1. THEORIES OF CONSUMER BEHAVIOR
  • 2.  I. UTILITY THEORY INDIFFERENCE THEORY  Vilfredo ParetoWilliam Stanley Jevons  Described thruAnalyz in total utility Consumer’s preference(TU) and marginal utility(MU) of “various“utils “ is the unit of combinations of goodsmeasure and services” based onConsumer satisfaction nature NOT on totalcan be measured thru TU utility and marginaland MU utility
  • 3. II. UTILITY THEORY A. Utility Schedule for Siomai Total Utility Marginal Utility Piece/ Unit (TU) MU=ΔTU/ ΔQ 0 0 0 1 14 14 2 25 11 3 33 8Consumer’ssatisfaction is 4 38 5 5 41 3measuredusing UTILS 6 43 2 7 43 0 8 41 -2 9 38 -3 10 33 -5 11 25 -8 12 14 -11 13 0 -14
  • 4. B. Plot the value on the X and Y axis Y-Values 50 45 40 35 30 25 Y-Values 20 15 10 5 0 0 5 10 15
  • 5. C. TOTAL UTILITY CURVE Connect the points. Then, observe the shape of the graph. Y-Values504540353025 Y-Values20151050 0 5 10 15
  • 6.  satisfaction derived in goods decrease as additional number of the same good is utilizedMU = Δ TU (TU2- TU1) Δ Q (Q2- Q1)
  • 7. MARGINAL UTILITY (MU) CURVE Y-Values201510 5 0 Y-Values -5 0 5 10 15-10-15-20
  • 8.  > Modern approach in understanding consumer behavior > Analysis is based on consumer preferences of various combinations of goods and services depending on its nature
  • 9. A. INDIFFERENCE SCHEDULE OF FOOD & CLOTHING FOOD AND CLOTHING (X) (Y) 350 - 40 230 - 80 150 - 120 90 - 160 60 - 200 40 - 240 30 - 280
  • 10. B. Plot the Indifference Schedule Y-Values 300 250 200 150 Y-Values 100 50 0 0 100 200 300 400
  • 11. C. Indifference Curve (Single Curve) Y-Values 300 250 200 150 Y-Values 100 50 0 0 100 200 300 400Indifference Curve = locus of points wherein each pointrepresents a combination of goods and services that willgive equal level of satisfaction to a consumer
  • 12. D. Indifference Map Y-Values300250200150 Y-Values100 50 0 0 100 200 300 400
  • 13. E. RULE in reading the IC’s The farther the IC from thepoint of origin OR as we moveupward from the origin going to theright the higher is the level ofsatisfaction. Thus, farther curves are morepreferred . 
  • 14. F. Important Properties of IC1) IC slopes downward (negative slope), therefore, consumer adds 1 unit of food, she/he needs to deduct 1 unit of clothing. REASON: budget constraint2) IC is convex to the point of origin, therefore, curve becomes flatter as it goes down from point A to G. Hence, slope decreases and it is said to be convex.3) IC does NOT meet or intersect at any point.4) IC reflects preferred combinations of goods/ services, therefore, IC moves to the right to show higher levels of utility.
  • 15. G. MARGINAL RATE OF SUBSTITUTION MRS = Δ Product (X) Δ Product (Y) FOOD CLOTHING MRS (Y) (X) 350 40 0 230 80 3 150 120 2 90 160 1.5 60 200 .75 40 240 .5 30 280 .25
  • 16. KEY WORDS:budget constraint = what consumerscan afford to buy based on her/his cashon handpreference = what they WANT toconsume is what they buyMarginal Rate of Substitution MRS = Δ X2- X1 Δ Y2- Y1