To study consumer behaviour, we must know Three things.
3. Consumer’s equilibrium (Various Utility concepts)
Demand is the willingness to buy a commodity at aparticular price and at a particular time. There are 3 components of demand.
1. willingness to buy the product
2. willingness to pay
3. At a particular time.( if I plan to buy something after 2 yrs, then its not demand. So. time is very importan
Definition/Meaning of Consumption: Consumption means the use of goods and services in satisfying human wants.
Kinds: a. Final b. Productive c. Quick or fast moving
Importance of Consumption:
- Importance to the Government
- Importance to Businessman
- Importance to Household
- Importance to Society
Consumer equilibrium is a situation when a consumer derives maximum satisfaction from the given resources.
Aim of a consumer = Deriving Maximum satisfaction from limited resources by
Aim of a producer = To maximise his profits
Consumer equilibrium for 1 commodity
Consumer behaviour is rational.
Consumer behaviour is consistent.
There are two commodities in consideration.
Consumer will attain its equilibrium (maximum satisfaction) at the point, where marginal utility of a product divided by the marginal utility of a rupee, is equal to the price.
Consumer’s equilibrium = Marginal utility of a product /Marginal utility of a rupee = price
Consumer equilibrium for 2 commodities
Consumer will attain its equilibrium (maximum satisfaction) at the point, where marginal utility of a product 1 divided by the price of product 1, is equal to the marginal utility of a product 2 divided by the price of product 2.
Marginal utility of a product A/Price of A = Marginal utility of a product B/Price of B
- The consumer equilibrium condition determines the quantity of goods 1 and 2 that the consumer demands,
- The price of good 1 is Rs 2 per unit and the price of good 2 is Rs 1 per unit.
- Also that the consumer has a budget of Rs 5.
- The marginal utility ( MU) that the consumer receives from consuming 1 to 4 units of goods 1 and 2 can be seen in the following table -
- If we look at column 3 and column 6 we will see that
- the consumer will buy 2 units of good 1 and 1 unit of good 2.