Narsee Monjee Institute of Management Studies

NMIMS University

Consumer Behaviour - I

Dipankar De
Mumbai, July 2007

1
 Consumer Behaviour

• Consumer behaviour is understood in three steps:

– Examine consumer preferences

– Account for consumer budget constraints

– Combine consumer preferences and budget constraints together

to determine consumer choices

2
Consumer Preferences

3
 Basic Assumptions

• Theory of consumer behaviour begins with three basic

assumptions:

– First assumption: Preferences are complete

– Second assumption: Preferences are transitive

– Third assumption: More is better

These three assumptions impose a degree of rationality and

reasonableness on the consumer preferences

4
 Completeness

• Consumers can compare and rank all market baskets

5
 Transitivity

• If a consumer prefers market basket A to market basket B,

and prefers B to C, then the consumer also prefers A to C

6
 Desirability

• All goods are “good” i.e. desirable, so that leaving costs

aside, consumers always prefer more of any good to less

7
 Indifference Curve

• An indifference curve represents all combinations of market

baskets that provide same level of satisfaction to a person.

Clothing

E
C

D
B

Food
8
 Indifference Curve

• An indifference curve represents all combinations of market

baskets that provide same level of satisfaction to a person.

Clothing

E
C

D
B

Food
9