BAEB602 Chapter 4: Theory of Consumer Behaviour

618 views
523 views

Published on

Published in: Self Improvement, Business
0 Comments
3 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
618
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
25
Comments
0
Likes
3
Embeds 0
No embeds

No notes for slide

BAEB602 Chapter 4: Theory of Consumer Behaviour

  1. 1. BAEB602 MICROECONOMICS CHAPTER 4 THEORY OF CONSUMER BEHAVIOURPREPARED BY:Nur Suhaili RamliSchool of Marketing andEntrepreneurship (SoME)FACULTY OF BUSINESS AND MANAGEMENT
  2. 2. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURObjectives TOPIC  Define total utility and marginal utility  Describe the meaning of the Law of Diminishing Marginal Utility.  Explain the marginal utility theory of consumer choice.  Use marginal utility theory to predict the effects of changing prices and incomes. Slide 2 of 17
  3. 3. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURMarginal Utility Theory TOPIC  Total Utility (TU)  Total utility is the total amount of satisfaction obtained from the consumption of a good or service.  Marginal Utility (MU)  Marginal utility is the additional satisfaction obtained from the consumption of one more unit of good or service. Marginal utility is computed by taking the change in total utility divided by the change in the quantity of a good consumed i.e: MU = TU / Q where MU = marginal utility  TU = change in total utility  Q = change in quantity of a good consumed Slide 3 of 17
  4. 4. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURThe Law of Diminishing Marginal Utility TOPIC  Most of us spread our incomes over many different kinds of goods. One of the reasons for such behavior is that consuming more and more of any one good reduces the marginal, or extra, satisfaction we get from the further consumption of the same good. Slide 4 of 17
  5. 5. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURExample TOPIC  Illustrates the concepts that we have just discussed. Assuming that Jane loves pizza, and she visits a pizza restaurant and consumed 5 slices of pizza. Slide 5 of 17
  6. 6. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURMaximizing Total Utility TOPIC  Consumer is said to be in equilibrium if he/she has selected the combination of goods and services that maximize his/her total utility.  In considering the consumer equilibrium, the following assumptions are made for the individual consumer:  Has a limited income  Acts in rational manner  Aims to maximize his/her total utility subject to the income constraint. Slide 6 of 17
  7. 7. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURMaximizing Total Utility TOPIC  Total utility is maximized when all the consumer’s income is spent and when the marginal utility per dollar spent is equal for all goods. Assuming that only two goods are consumed, the utility-maximizing rule is as follow:  Mux = MUy Px Py Where MUx is the marginal utility derived from the last unit of X consumed, MUy is the marginal utility derived from the last unit of Y consumed, Px is the price per unit of X, and Py is the price per unit of Y. Slide 7 of 17
  8. 8. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURExample TOPIC Price for a bottle of mineral is RM1.50 and a muffin is RM1. what is the maximize utility to meet RM9 of income? Slide 8 of 17
  9. 9. CHAPTER 4: THEORY OF CONSUMER BEHAVIOURConsumer Equilibrium and the Law of Demand TOPIC  Based on the examples discussed, the demand curve for muffin can be derived. When the price of muffin is RM1 as shown, Brian chose to consume 3 muffins. When price of muffin fall to RM0.50, Brian’s consumption of muffins increases to 6. This data can be summarized as follows:  Price = RM1, Quantity demanded for muffin = 3  Price = RM0.5, Quantity demanded for muffin = 6 Therefore, with this data, we can plot the demand curve for muffin. Slide 9 of 17

×