Consumer Behavior

1. GROUP 5
THE CONSUMER’S
BEHAVIOR

2. THE CONCEPT OF CHOICE AND
UTILITY
• In the analysis of consumer behaviour, Utility
denotes satisfaction, a subjective pleasure that an
individual can derive from consuming a good or
service. The economic theory of the consumer can
be described in a straightforward manner: ‘The
consumer prefers the best bundle of goods that
he can afford.’ Tastes or preferences and income
are the factors that make an individual decide
what bundle of goods to consume.

3. CAN WE MEASURE SATISFACTION
OR UTILITY ?
• There were attempts to quantify satisfaction in the past
using the cardinal utility theory, This theory used cardinal
ranking of preferences, which attaches specific numbers
to specific numbers to different levels of satisfaction
however, a lot of economists doubted the attempt to
measure utility and then emerged ordinal utility theory as
an alternative. They (The Ordinalists) asserted that the only
thing consumers can do is to rank or order is preferences,
referred to as ordinal ranking preferences, hence the name
ordinal utility.

4. TASTES AND PREFERENCES
• Tastes and preferences are subjective in nature. It
means that an individual has a distinctive ways of
choosing what is best for him in gaining
satisfaction. Basically, your tastes and preferences
will tell something about your personality, like
listening to rock music or to mellow sounds. Your
preferences depict which goods provides
satisfaction and how much satisfaction will you
receive.

5. LAW OF DIMINISHING
MARGINAL UTILITY
• The Law Of Diminishing Marginal Utility states that
all else equal as consumption increases the marginal
utility derived from each additional unit declines.
Marginal utility is derived as the change in utility as
an additional unit is consumed. Utility is an economic
term used to represent satisfaction or happiness.
Marginal utility is the incremental increase in utility
that results from consumption of one additional unit.

7. THE CONSUMER’S
EQUILIBRIUM
• Every consumer will attempt to maximize total utility
or satisfaction from spending his income. If total
utility is maximized with regard to his income, it
means that he is in equilibrium. Or, spending the
last peso of his income on two goods until the utility
or satisfaction derived in consuming both goods is
the same. Mathematically, this can be expressed as
follows:
𝑀𝑈𝑥
𝑃𝑥
=
𝑀𝑈𝑦
𝑃𝑦

8. Qc Px MUx Py MUy
1 10 96 5 73
2 10 93 5 68
3 10 88 5 60
4 10 80 5 58
5 10 76 5 50
6 10 60 5 40
7 10 52 5 35
8 10 48 5 30
9 10 45 5 27
10 10 40 5 20

9. Qx Px MUx 𝑴𝑼𝒙
𝑷𝒙
Py MUy 𝑴𝑼𝒚
𝑷𝒚
1 10 96 9.6 5 73 14.6
2 10 93 9.3 5 68 13.6
3 10 88 8.8 5 60 12
4 10 80 8 5 58 11.6
5 10 76 7.6 5 50 10
6 10 60 6 5 40 8
7 10 52 5.2 5 35 7
8 10 48 4.8 5 30 6
9 10 45 4.5 5 27 5.4
10 10 40 4 5 20 4

10. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 14.6 5
2 9.3 13.6
3 8.8 12
4 8 11.6
5 7.6 10
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

11. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 14.6 5
2 9.3 13.6 5
3 8.8 12
4 8 11.6
5 7.6 10
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

12. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 14.6 5
2 9.3 13.6 5
3 8.8 12 5
4 8 11.6
5 7.6 10
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

13. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 14.6 5
2 9.3 13.6 5
3 8.8 12 5
4 8 11.6 5
5 7.6 10
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

14. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 14.6 5
2 9.3 13.6 5
3 8.8 12 5
4 8 11.6 5
5 7.6 10 5
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

15. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 13.6 5
3 8.8 12 5
4 8 11.6 5
5 7.6 10 5
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

16. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 12 5
4 8 11.6 5
5 7.6 10 5
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

17. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 10 12 5
4 8 11.6 5
5 7.6 10 5
6 6 8
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

18. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 10 12 5
4 8 10 11.6 5
5 7.6 10 5
6 6 8 5
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

19. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 10 12 5
4 8 10 11.6 5
5 7.6 10 10 5
6 6 8 5
7 5.2 7
8 4.8 6
9 4.5 5.4
10 4 4

20. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 10 12 5
4 8 10 11.6 5
5 7.6 10 10 5
6 6 8 5
7 5.2 7 5
8 4.8 6
9 4.5 5.4
10 4 4

21. Qc 𝑴𝑼𝒙
𝑷𝒙
𝑴𝑼𝒚
𝑷𝒚
1 9.6 10 14.6 5
2 9.3 10 13.6 5
3 8.8 10 12 5
4 8 10 11.6 5
5 7.6 10 10 5
6 6 10 8 5
7 5.2 7 5
8 4.8 6 5
9 4.5 5.4
10 4 4

22. INDIFFERENCE CURVE
• An indifference curve is a graph showing
combination of two goods that give the
consumer equal satisfaction and utility. Each
point on an indifference curve indicates that
a consumer is indifferent between the two
and all points give him the same utility.

24. THE BUDGET CONSTRAINT
• A budget constraint occurs when a consumer is limited
in consumption patterns by a certain income.
• A budget line shows the different combinations of
Good X and Good Y that a consumer can purchase given
his income and the prices of the goods.

25. A budget line that shifts to the right shows an increase
in income, while a leftward shift denotes a decrease in
income.

26. INCOME CONSUMPTION
CURVE AND ENGEL CURVE
• Income consumption curve is defined as a
collection points of consumer equilibrium
resulting from varying income.
• Engel curve shows the amount of
commodity that the consumer would buy per
unit of time at a different level of income.

28. PRICE CONSUMPTION
CURVE
• The price consumption curve (PCC) is a
collection of points of consumer’s equilibrium
resulting from varying price of Good X while
the income and price of Good Y is fixed.

30. SUBSTITUTION EFFECT
• The substitution effect is the change in consumption
patterns of Good X in relation to Good Y due to a
change in the relative prices of goods while keeping
income constant.

31. INCOME EFFECT
• The income effect is the change in consumption
patterns due to the change in purchasing power while
price remains constant. Price decrease increases
one’s purchasing power. For example, a decrease in
the price of all cars allows you to buy either a cheaper
car or a better car for the same price, thus increasing
your utility.

33. THANK YOU!!!
GOD BLESS