Consumer Behavior

A consumer is someone who makes demands in the market. If there is no consumer then there would be no producer. If we, as a consumer won't make demand for a commodity in the market, the producer won't produce it because it wont be sold.

To study consumer behaviour, we must know Three things.

1. Demand

2. Consumption

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

Goods and services need to be consumed in order to satisfy human wants. Consumption is registered the beginning as well as the end of all economic activities.

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
d.slow

Importance of Consumption:

• Importance to the Government
• Importance to Businessman
• Importance to Household
• Importance to Society

Consumer’s equilibrium

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
making choice.
Aim of a producer = To maximise his profits

Consumer equilibrium for 1 commodity
Assumptions:
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

Explanation-

• 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.

At this point, Marginal Utility/Price of good 1 = Marginal Utility/Price of good 2