Economics ppt
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The document discusses rationing, which is the government allocation of goods during times of scarcity, and how it can constrain consumer choices by limiting the quantities they can purchase. Rationing is analyzed using indifference curves, which show combinations of goods that provide the same level of satisfaction, and it is explained that rationing may raise or lower consumer welfare depending on whether the rationed amounts meet an individual's needs and preferences. The document concludes that a rationing scheme that allows consumers to purchase different amounts based on their preferences would improve consumer welfare over an equal allocation scheme.
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Consumer choice theory
1) Consumer choice theory examines how consumers maximize utility given budget constraints. Utility is the satisfaction derived from consuming goods and services, though it cannot be directly measured. 2) Consumers face diminishing marginal utility as consumption increases, and seek to equalize marginal utility per dollar across goods. 3) Consumer equilibrium occurs when marginal utility per dollar is equal for all goods purchased, maximizing total utility for the budget. A change in price alters the equilibrium as consumers substitute goods to restore optimal satisfaction levels.
Theory of Consumer Choice Lecture Notes (Economics)
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Theory consumer choice
1. The document discusses concepts related to consumer choice theory including utility, total utility, marginal utility, budget constraints, indifference curves, and how consumer choices are impacted by changes in income and prices.
2. It provides illustrations of budget constraints, indifference curves, and how consumers optimize their choices of goods at the point where the highest indifference curve is tangent to the budget constraint.
3. It also explains how increases in income shift the budget constraint outward, allowing consumers to consume more goods, and how decreases in price rotate the budget constraint outward and impact substitution between goods.
The theory of consumer choice
The document discusses key concepts in consumer theory including indifference curves, budget constraints, utility maximization, and the properties of indifference curves. It provides multiple choice questions to test understanding of these concepts. Specifically, it covers the four properties of indifference curves which are that higher curves are preferred to lower, they slope downward, they do not cross, and their marginal rate of substitution is equal to the slope. It also addresses optimal choice as the point where the highest indifference curve is tangent to the budget constraint and how changes in prices or income can shift the budget line.
The Budget Line
This is part of an introduction to indifference curve analysis. A budget line shows the combinations of two products that a consumer can afford to buy with a given income – using all of their available budget
The gradient of the budget line reflects the relative prices of the two products
Consumer choice
1. There are two approaches to analyzing utility - the cardinal and ordinal approaches. The cardinal approach measures utility directly while the ordinal only ranks preferences.
2. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases.
3. A consumer will purchase goods up to the point where the marginal utility per dollar spent is equal across all goods, reaching equilibrium. This is known as the equimarginal principle.
4. Indifference curves show combinations of goods that provide equal utility. The budget constraint shows affordable combinations. The optimal choice is where an indifference curve is tangent to
Consumer2 behaviour indifference curve
This document discusses consumer behavior and how consumers make choices based on their budget constraints and preferences. It covers the key concepts of budget lines, indifference curves, marginal rates of substitution, and how consumer choices are impacted by changes in income and prices. The budget line shows the combinations of goods a consumer can afford given their income, while indifference curves represent bundles of goods that make the consumer equally satisfied. Changes in income shift the budget line, allowing the consumer to achieve a higher indifference curve. Changes in prices rotate and change the slope of the budget line, impacting consumption through income and substitution effects.
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The document summarizes key concepts from consumer choice theory in economics. It discusses the concepts of utility, total utility, marginal utility, diminishing marginal utility, and consumer equilibrium. It explains that consumer equilibrium occurs when the marginal utility per dollar is equal for all goods purchased. This can be used to derive the downward-sloping demand curve, as when price falls, consumption increases to restore equilibrium. The income and substitution effects are also summarized as complementary explanations for the law of demand. When price decreases, these effects work together to increase the quantity demanded.
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Consumer choice theory
1) Consumer choice theory examines how consumers maximize utility given budget constraints. Utility is the satisfaction derived from consuming goods and services, though it cannot be directly measured. 2) Consumers face diminishing marginal utility as consumption increases, and seek to equalize marginal utility per dollar across goods. 3) Consumer equilibrium occurs when marginal utility per dollar is equal for all goods purchased, maximizing total utility for the budget. A change in price alters the equilibrium as consumers substitute goods to restore optimal satisfaction levels.
Theory of Consumer Choice Lecture Notes (Economics)
FellowBuddy.com is an innovative platform that brings students together to share notes, exam papers, study guides, project reports and presentation for upcoming exams.
We connect Students who have an understanding of course material with Students who need help.
Benefits:-
# Students can catch up on notes they missed because of an absence.
# Underachievers can find peer developed notes that break down lecture and study material in a way that they can understand
# Students can earn better grades, save time and study effectively
Our Vision & Mission – Simplifying Students Life
Our Belief – “The great breakthrough in your life comes when you realize it, that you can learn anything you need to learn; to accomplish any goal that you have set for yourself. This means there are no limits on what you can be, have or do.”
Like Us - https://www.facebook.com/FellowBuddycom
Theory consumer choice
1. The document discusses concepts related to consumer choice theory including utility, total utility, marginal utility, budget constraints, indifference curves, and how consumer choices are impacted by changes in income and prices.
2. It provides illustrations of budget constraints, indifference curves, and how consumers optimize their choices of goods at the point where the highest indifference curve is tangent to the budget constraint.
3. It also explains how increases in income shift the budget constraint outward, allowing consumers to consume more goods, and how decreases in price rotate the budget constraint outward and impact substitution between goods.
The theory of consumer choice
The document discusses key concepts in consumer theory including indifference curves, budget constraints, utility maximization, and the properties of indifference curves. It provides multiple choice questions to test understanding of these concepts. Specifically, it covers the four properties of indifference curves which are that higher curves are preferred to lower, they slope downward, they do not cross, and their marginal rate of substitution is equal to the slope. It also addresses optimal choice as the point where the highest indifference curve is tangent to the budget constraint and how changes in prices or income can shift the budget line.
The Budget Line
This is part of an introduction to indifference curve analysis. A budget line shows the combinations of two products that a consumer can afford to buy with a given income – using all of their available budget
The gradient of the budget line reflects the relative prices of the two products
Consumer choice
1. There are two approaches to analyzing utility - the cardinal and ordinal approaches. The cardinal approach measures utility directly while the ordinal only ranks preferences.
2. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases.
3. A consumer will purchase goods up to the point where the marginal utility per dollar spent is equal across all goods, reaching equilibrium. This is known as the equimarginal principle.
4. Indifference curves show combinations of goods that provide equal utility. The budget constraint shows affordable combinations. The optimal choice is where an indifference curve is tangent to
Consumer2 behaviour indifference curve
This document discusses consumer behavior and how consumers make choices based on their budget constraints and preferences. It covers the key concepts of budget lines, indifference curves, marginal rates of substitution, and how consumer choices are impacted by changes in income and prices. The budget line shows the combinations of goods a consumer can afford given their income, while indifference curves represent bundles of goods that make the consumer equally satisfied. Changes in income shift the budget line, allowing the consumer to achieve a higher indifference curve. Changes in prices rotate and change the slope of the budget line, impacting consumption through income and substitution effects.
06 consumer choice theory
The document summarizes key concepts from consumer choice theory in economics. It discusses the concepts of utility, total utility, marginal utility, diminishing marginal utility, and consumer equilibrium. It explains that consumer equilibrium occurs when the marginal utility per dollar is equal for all goods purchased. This can be used to derive the downward-sloping demand curve, as when price falls, consumption increases to restore equilibrium. The income and substitution effects are also summarized as complementary explanations for the law of demand. When price decreases, these effects work together to increase the quantity demanded.
Session 14 the theory of consumer choice
1. The document discusses the theory of consumer choice and how it addresses questions about demand curves, labor supply, and household saving.
2. It explains the budget constraint and indifference curves, which represent the combinations of goods a consumer can afford and their preferences.
3. The consumer's optimal choice occurs where the highest indifference curve is tangent to the budget constraint, equaling the marginal rate of substitution to the relative price.
Indifference Curve
Indifference curves show combinations of goods that provide consumers with the same level of utility or satisfaction. They are convex and bowed inward, reflecting the principle of diminishing marginal utility. The slope of the indifference curve represents the marginal rate of substitution, which declines as consumption increases along the curve. An indifference map uses a series of indifference curves to represent different utility levels. Budget lines show affordable combinations given prices and income. The point where the highest indifference curve is tangent to the budget line indicates the utility-maximizing choice.
Indifference curves
Indifference curves show combinations of goods that provide the same level of satisfaction to a consumer. A consumer seeks to maximize utility by consuming the combination on their highest attainable indifference curve, which is tangent to their budget constraint. As more of a good is consumed, the marginal rate of substitution diminishes, following the law of diminishing marginal rate of substitution. When prices or income change, the budget constraint shifts, changing the optimal consumption bundle where the indifference curve is tangent to the new budget line.
Consumer choice and demand
1. The document discusses concepts of utility, total utility, marginal utility, and how consumers maximize utility subject to budget constraints. It shows how utility maximization determines consumer demand for goods at different price points.
2. Utility is the satisfaction from consumption, while marginal utility is the change in satisfaction from consuming one more unit. The law of diminishing marginal utility states that additional units of a good provide less additional satisfaction.
3. Consumers maximize utility by equating the marginal utility per dollar spent across goods, purchasing up to the point where marginal utility per dollar is equal for all goods.
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This document provides an overview of price, income, and consumption analysis. It discusses how households make consumption choices based on their budget constraints. It explains how budget lines change with prices and income, and how indifference curves can be used to predict the effects of these changes on consumption. The document also discusses how wage changes affect the tradeoff between labor and leisure.
Indifference curve
This document discusses indifference curves and utility maximization. It introduces indifference curves as graphical representations of combinations of goods that provide the same level of satisfaction to a consumer. Indifference curves slope downward and are convex, showing an inverse relationship between consumption of different goods. The marginal rate of substitution measures how much of one good a consumer is willing to trade for another good. Consumer equilibrium occurs where the indifference curve tangent is equal to the budget constraint slope. Changes in prices impact consumer equilibrium through income and substitution effects.
Indifference Curves
An indifference curve shows combinations of goods that give a consumer the same level of satisfaction or utility. It is normally drawn as convex to the origin to reflect the assumption that as consumption of a good increases, the marginal utility from additional units decreases. Points on the same indifference curve represent combinations that are indifferent to the consumer, while higher indifference curves correspond to greater total utility or satisfaction.
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The document discusses the theory of consumer behavior, which explains how consumers allocate their limited income to purchase different goods and services in order to maximize their utility or satisfaction. It covers key concepts such as consumer preferences, budget constraints, indifference curves, and marginal rate of substitution. Consumer preferences can be represented using indifference curves, which show combinations of goods that provide equal satisfaction. The slope and shape of indifference curves provide information about how willing a consumer is to substitute one good for another.
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This document provides answers to end-of-chapter questions about consumer behavior and utility maximization. It discusses key concepts like the law of demand, diminishing marginal utility, and how consumers allocate expenditures to maximize total utility based on marginal utility per dollar spent. For example, one question is answered by calculating the marginal utility per dollar spent on different goods and determining the quantities that equalize this ratio, maximizing the consumer's total utility. The document also discusses how time can be incorporated into consumer decision making and concepts like economic growth and rational decision making.
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1. The document discusses the theory of consumer choice and how it relates to budget constraints and indifference curves.
2. A consumer's budget constraint shows the combinations of goods that can be afforded given income and prices, and indifference curves represent combinations of goods that provide equal satisfaction.
3. The consumer's optimal choice occurs where the highest indifference curve is tangent to the budget constraint, where the marginal rate of substitution equals the relative price.
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This document discusses consumer choice and demand. It covers the concepts of utility, tastes and preferences, the law of diminishing marginal utility, and utility maximization. Consumer equilibrium is reached when the marginal utility per dollar spent is equal for all goods, given a budget constraint. Consumer surplus measures the difference between what consumers are willing to pay and the actual price paid, and it increases with lower market prices. Time is also a factor in demand, as consumers may pay more to save time.
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This document discusses the ordinal utility approach to consumer behavior. It provides 3 key points:
1) The ordinal utility approach differs from the cardinal utility approach in that satisfaction derived from commodities cannot be objectively measured, but can only be ranked qualitatively. Utility is measured in ordinal rather than cardinal numbers.
2) Indifference curves are used to graphically represent combinations of goods that provide equal satisfaction to the consumer. The slope of the indifference curve, known as the marginal rate of substitution, captures the rate at which a consumer will substitute one good for another.
3) Consumer equilibrium is reached when the budget constraint is tangent to the highest attainable indifference curve, meaning the marginal rate of substitution equals the
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2. It explains the budget constraint and indifference curves, which represent the combinations of goods a consumer can afford and their preferences.
3. The consumer's optimal choice occurs where the highest indifference curve is tangent to the budget constraint, equaling the marginal rate of substitution to the relative price.
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Indifference curves show combinations of goods that provide consumers with the same level of utility or satisfaction. They are convex and bowed inward, reflecting the principle of diminishing marginal utility. The slope of the indifference curve represents the marginal rate of substitution, which declines as consumption increases along the curve. An indifference map uses a series of indifference curves to represent different utility levels. Budget lines show affordable combinations given prices and income. The point where the highest indifference curve is tangent to the budget line indicates the utility-maximizing choice.
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1. The document discusses concepts of utility, total utility, marginal utility, and how consumers maximize utility subject to budget constraints. It shows how utility maximization determines consumer demand for goods at different price points.
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This document provides an overview of price, income, and consumption analysis. It discusses how households make consumption choices based on their budget constraints. It explains how budget lines change with prices and income, and how indifference curves can be used to predict the effects of these changes on consumption. The document also discusses how wage changes affect the tradeoff between labor and leisure.
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This document discusses indifference curves and utility maximization. It introduces indifference curves as graphical representations of combinations of goods that provide the same level of satisfaction to a consumer. Indifference curves slope downward and are convex, showing an inverse relationship between consumption of different goods. The marginal rate of substitution measures how much of one good a consumer is willing to trade for another good. Consumer equilibrium occurs where the indifference curve tangent is equal to the budget constraint slope. Changes in prices impact consumer equilibrium through income and substitution effects.
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An indifference curve shows combinations of goods that give a consumer the same level of satisfaction or utility. It is normally drawn as convex to the origin to reflect the assumption that as consumption of a good increases, the marginal utility from additional units decreases. Points on the same indifference curve represent combinations that are indifferent to the consumer, while higher indifference curves correspond to greater total utility or satisfaction.
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The document discusses the theory of consumer behavior, which explains how consumers allocate their limited income to purchase different goods and services in order to maximize their utility or satisfaction. It covers key concepts such as consumer preferences, budget constraints, indifference curves, and marginal rate of substitution. Consumer preferences can be represented using indifference curves, which show combinations of goods that provide equal satisfaction. The slope and shape of indifference curves provide information about how willing a consumer is to substitute one good for another.
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This document provides answers to end-of-chapter questions about consumer behavior and utility maximization. It discusses key concepts like the law of demand, diminishing marginal utility, and how consumers allocate expenditures to maximize total utility based on marginal utility per dollar spent. For example, one question is answered by calculating the marginal utility per dollar spent on different goods and determining the quantities that equalize this ratio, maximizing the consumer's total utility. The document also discusses how time can be incorporated into consumer decision making and concepts like economic growth and rational decision making.
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1. The document discusses the theory of consumer choice and how it relates to budget constraints and indifference curves.
2. A consumer's budget constraint shows the combinations of goods that can be afforded given income and prices, and indifference curves represent combinations of goods that provide equal satisfaction.
3. The consumer's optimal choice occurs where the highest indifference curve is tangent to the budget constraint, where the marginal rate of substitution equals the relative price.
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This document discusses consumer choice and demand. It covers the concepts of utility, tastes and preferences, the law of diminishing marginal utility, and utility maximization. Consumer equilibrium is reached when the marginal utility per dollar spent is equal for all goods, given a budget constraint. Consumer surplus measures the difference between what consumers are willing to pay and the actual price paid, and it increases with lower market prices. Time is also a factor in demand, as consumers may pay more to save time.
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This document discusses the ordinal utility approach to consumer behavior. It provides 3 key points:
1) The ordinal utility approach differs from the cardinal utility approach in that satisfaction derived from commodities cannot be objectively measured, but can only be ranked qualitatively. Utility is measured in ordinal rather than cardinal numbers.
2) Indifference curves are used to graphically represent combinations of goods that provide equal satisfaction to the consumer. The slope of the indifference curve, known as the marginal rate of substitution, captures the rate at which a consumer will substitute one good for another.
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The law of equi-marginal utility holds that consumers maximize utility by allocating spending such that the marginal utility per unit of currency is equal across all goods purchased. This ensures no reallocation could further increase total utility. The concepts
Utility & Demand Analysis.pptx
This document discusses concepts related to consumer choice theory and demand analysis. It covers the assumptions of consumer preferences like completeness, transitivity, and non-satiation. It also discusses utility analysis, the cardinal and ordinal views of utility, the law of diminishing marginal utility, indifference curves, and consumer equilibrium. Finally, it covers the different types of demand, determinants of demand, and the law of demand.
Eco
This document discusses consumer demand theory and indifference curve analysis. It covers key concepts like the law of diminishing marginal utility, willingness to pay, substitution and income effects, indifference curves, budget constraints, and the Giffen good paradox. Consumer demand analysis examines factors that influence consumer purchasing decisions and how sales can be improved. Indifference curve analysis provides a more realistic model of consumer behavior compared to marginal utility theory.
Be chap3 theory of individual behavior
The document discusses key concepts in consumer theory, including:
1) Consumer preferences are represented by indifference curves, which show combinations of goods that provide equal utility. Consumer opportunities are limited by their budget constraint.
2) A consumer seeks the highest attainable indifference curve subject to their budget constraint, reaching equilibrium where the marginal rate of substitution equals the price ratio.
3) Changes in prices and income shift the budget constraint, leading to new consumer equilibria through substitution and income effects.
4) An individual's demand curve is derived from the relationship between price and quantity consumed at different indifference curves. Market demand aggregates individual demand curves.
Consumer theory
Consumer theory helps understand how individuals make choices given limited budgets to maximize satisfaction or utility. It assumes consumers are rational and want to maximize utility subject to budget constraints. There are two main approaches - the cardinal and ordinal theories. The cardinal theory assumes utility is quantitatively measurable while the ordinal theory only requires preferences can be ranked. Both use concepts like total utility, marginal utility, indifference curves, and budget constraints to model consumer choice and derive the downward sloping demand curve. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from each additional unit decreases. This forms the basis for consumer demand curves and many economic implications.
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This document provides an overview of microeconomics topics related to demand and supply, including the theories of demand, law of demand, demand function, elasticity of demand and supply, consumer equilibrium using utility and indifference curve approaches, and the law of demand. It defines key concepts such as utility, total utility, marginal utility, indifference curves, budget line, and examines how factors like price, income, tastes, and expectations influence individual demand. Exceptions to the law of demand like Giffen goods are also briefly discussed.
Bba 1 be 1 u-3 consumer behavior and demand analysis
This document provides information about consumer behavior and demand analysis. It defines key concepts like utility, total utility, marginal utility, law of diminishing marginal utility, and law of equi-marginal utility. It explains how consumers aim to maximize total utility given budget constraints. Indifference curves and marginal rate of substitution are introduced to graphically represent consumer preferences. Consumer equilibrium occurs where the budget line is tangent to the highest indifference curve, allowing consumers to obtain maximum satisfaction from their income.
Bba 1 be 1 u-3 consumer behavior and demand analysis
This document provides information about consumer behavior and demand analysis. It defines key concepts like utility, total utility, marginal utility, indifference curves, and consumer equilibrium. Utility refers to the satisfaction received from consuming goods and services. The law of diminishing marginal utility states that utility from successive units of consumption declines. Indifference curves represent combinations of goods that provide equal utility to the consumer. Consumer equilibrium occurs where the budget line is tangent to the highest indifference curve, allowing maximum satisfaction from the consumer's income.
Consumer Behavior in agricultural consumption.pptx
This document discusses key concepts in consumer behavior including:
1. Consumer preferences are evaluations consumers make about products based on factors like quality, price, and taste. Preferences are assumed to be complete, transitive, and where more is better than less.
2. Budget constraints graphically represent all combinations of goods that can be purchased with a given income and prices. Changes in income or prices shift the budget line in or out.
3. Consumers make choices to maximize satisfaction within their budget constraint by locating their preferred bundle on the budget line.
Chapter 2 Demand and Supply.docx
This document discusses demand, supply, and elasticity. It defines demand as the quantity of a good that consumers are willing and able to purchase at a given price. Supply is defined as the quantity of a good that producers are willing to sell at a given price. The law of demand states that, assuming other factors are constant, quantity demanded increases when price decreases and decreases when price increases. Supply curves normally slope upward, indicating that higher prices lead to greater quantity supplied. Determinants of demand and supply include price, income, prices of substitutes and complements, tastes and preferences, expectations, and others.
AE 121 L3 CONSUMER THEORY INTRODUCTION.pdf
bachelor of business in accountancy, often simply called business, is a field of study that deals with the principles of business, management, and economics.[1] It combines elements of accountancy, finance, marketing, organizational studies, human resource management, and operations. Business studies is a broad subject,[2] where the range of topics is designed to give the student a general overview of the various elements of running a business. The teaching of business studies is known as business education.Business studies can be taken as part of the General Certificate of Secondary Education (GCSE) option for Year 9, Year 10 and Year 11 at secondary school and also can be taken as part of a GCE Advanced Level (A-level) course in Year 12 and Year 13. It includes a range of subjects, which give the student general understanding of the various elements of running a business. Subjects covered include, but are not limited to: Business Organization, People in Business, Marketing, Operations & Production, Finance, and Strategic Management. The University of Cambridge considers business studies not to be a 'traditional academic subject', although taking business studies individually will not disadvantage students as long as it is identified as 'essential' or 'desirable' for the course being applied for. It is also suitable when applying for economics at university, if the college the candidate comes from does not offer the economics A-level individually.Business studies programmes are widely taught in the Republic of Nepal, where it is taught at every colleges of +2 level and also in colleges that provide A-Levels. A number of universities (public and private) are offering business studies programme under the heading of Business Administration.
Chapter_4_Consumer_Equilibrium_and_Market_Demand_Fall_2012.ppt
This document provides an overview of key topics in consumer equilibrium and market demand, including:
1. Conditions for consumer equilibrium occur where the marginal utility derived from the last dollar spent on each good is identical.
2. Changes in equilibrium can result from changes in product price or other demand determinants like income.
3. Consumer surplus represents the economic benefit consumers receive when they pay less for a product than they are willing to pay.
Consumer Equilibrium and Market Demand.ppt
This document provides an overview of key topics in consumer equilibrium and market demand, including:
1. Conditions for consumer equilibrium occur where the marginal utility derived from the last dollar spent on each good is identical.
2. Changes in equilibrium can result from changes in product price or other demand determinants like income.
3. Consumer surplus represents the economic benefit consumers receive when they pay less for a product than they are willing to pay.
Economics Analysis
Demand
Law of demand
Utility
Law of Diminishing marginal utility
Movement and shift of demand curve
Elasticity of demand
Price elasticity of demand
Uses of price elasticity
Chapter 4 Consumer Behavior
The document discusses key concepts of consumer behavior and demand. It explains that consumers seek to maximize their utility given their budget constraint. Consumer preferences are represented by indifference curves, showing bundles of goods that provide equal satisfaction. The budget constraint depends on prices and income. Consumers reach equilibrium where the marginal rate of substitution equals the price ratio, maximizing utility. Changes in prices and income shift the budget constraint, creating new equilibria through substitution and income effects. Individual demand curves are derived from indifference curves. Market demand aggregates individual demand curves.
Transformation
The Public Distribution System (PDS) in India aims to provide subsidized food and supplies to the poor, but it suffers from many flaws and inefficiencies. Only about 25% of expenditures on PDS actually reach the poor. Proposed reforms include increasing accountability, monitoring, and eliminating bogus ration cards. IIM Shillong has proposed replacing PDS with a new Assam State Civil Supplies Corporation run as a private-public partnership to eliminate leaks. However, large amounts of grain are still being damaged in government storage facilities, highlighting ongoing problems with the system.
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A brief presentation on Theory of Consumer Behaviour, adopted from Principles of Agricultural Economics by David Coleman and Trevor Young,,,,,, ENJOY
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Bba 1 be 1 u-3 consumer behavior and demand analysis
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Economics ppt
- 1. RATIONING AND INDIFFERENCE CURVE Submitted to: Ms. Anupreet Mavi
- 2. SITUATION UNDER CONSIDERATION Rationing of goods by the government {under what conditions } Act as a binding or a constraint on consumer choices And how it effects consumer welfare
- 3. RATIONING By definition , it is a fixed portion, especially an amount of food allotted to persons in military service or to civilians in times of scarcity at a lower price. Rationing is an artificial restriction of demand. Setting a lower price , in case of shortage, would prevent market price to drive very high. As high prices, especially in the case of necessities, are undesirable with regard to those who cannot afford them.
- 4. INDIFFERENCE CURVE An indifference curve captures combinations of commodities that yield the same level of satisfaction to the consumer. The consumer is , therefore , indifferent amongst these combinations.
- 5. INDIFFERENCE CURVE AND RATIONING The indifference curve method is used to make clear the problem arising from diverse systems of rationing. Rationing comprises of setting specific and equal quantities of commodities to each individual irrespective of the fact whether one receives more or less satisfaction from it.
- 6. CONDITIONS MAKING RATIONING A CONSTRAINT ON CONSUMER CHOICES Price Income Goods of necessities Non availability of goods rationed or their substitutes Consumer satisfaction
- 7. EFFECT OF RATIONING ON CONSUMER BEHAVIOUR Level of satisfaction y Commodity A IC2 IC IC1 o Commodity B x
- 8. EXAMPLE A consumer requires 4 kg. of wheat but is unable to buy it as he only has Rs. 40 and wheat is Rs.15 per kg. Govt. rations wheat at Rs. 10 per kg. and limits quantity to 4 kg. per head. Consumer will be able to buy in accordance with his requirement. Higher level of satisfaction A consumer requires 10 kg. of wheat and has the income to buy it. Govt. rations wheat at Rs. 10 per kg and limits quantity to 5 kg. per head. Consumer will be unable to buy in accordance with his requirement.
- 9. CONTI…. Shift in budget line y Example: A person has only Rs. 30 p1 and rice is Rs. 15 per kg p Govt. rations its price at Rs. 10 per kg and quantity at 4 kg He earlier could buy only 2 o p p1 x kg but now will be able to buy 3 kg (real value of income changes)
- 10. RATIONING IN CONSUMER WELFARE Price control Real value of income increases Budget space increases Availability Level of satisfaction changes
- 11. The other, rather liberal scheme is to allow an individual more or less quantities of the rationed commodities according to his liking. It can be demonstrated with the help of indifference curve study that the last scheme is definitely better and beneficial than the former.