BUSAING, MA. CHRISTINA A.

BSA 2B

Youtube link: https://youtu.be/TEB_b5notzM

THEORY OF CONSUMER BEHAVIOUR

Suppose you are given a budget of P60 to be spent for personal

consumption in Yum Burger (yb) and Halo-Halo (hh). The price per unit
of yb is P8 while P4 for hh. Further, an incomplete consumption and
utility schedule is given to help you out make decision.

Tasks:

1. Complete the consumption and utility schedule

2. Draw a budget line

 If we consider Yum burger as good Y and Halo halo as good H, we have
the price of the goods as P8 and P4 respectively and a total income of
P60. The budget constraint is 60 = 8Y + 4H. Now if we consider Y in
the vertical axis and H in the horizontal axis, considering Y = 0, we
have H = 15, which gives us the horizontal intercept of the budget
line at (15,0) and when we consider H = 0, we have Y = 7.5 which gives
us the vertical intercept of the budget line at (0,7.5).

3. Determine the consumer equilibrium (e.g. 𝑀𝑈𝑦𝑏 𝑃𝑦𝑏 = 𝑀𝑈ℎℎ 𝑃ℎℎ )

- The consumer first purchase will be both a Yum burger(yb) and Halo
Halo(hh). Our choices are to purchase either a yumburger or a
halohalo. The table  shows that the marginal utility per peso spent on
the first yumburger is P20 which is same as halo halo. 

As the first yumburger and halohalo gives us gives the same marginal
utility per peso and it is within our budget, we will purchase both
yumburger and halo halo first. Next, we will go for a halo halo as the
second halo halo will give a more MU/price(19) than the second
yumburger. Next we will go again for both the second yumburger and
third halo halo as they both have the same MU/price(18).

So now our budget remains = P60 - (3 x P4 + 2 x P8) = P32. Next we

will go for fourth halo halo and then go for both the third yumburger
and fifth halo halo as we can see from the MU/price approach. Again
the consumer will go for the 6th halo halo and then for both the 7th
halo halo and 4th yumburger.

Now our budget remains  P60 - (7 x P4 + 4 x P8) = P0. We can see that
we has exhausted our budget after consuming 7 Halo halo and 4 Yum
burgers. 

The consumer equilibrium will be  7 Halo halo and 4 Yum burgers.

4. What does the consumer equilibrium in question No. 3 tell you?

- We will always go for the good which will gives us more bang for
buck(MU/Price) and we will accommodate it within his budget.

5. Using the identified consumer equilibrium in question No.3, and to

be better off, how many units of Yum Burger and Halo-Halo would you
consume given the limited budget?
- Given the limited budget of P60, the consumer will consume  7 Halo
halo and 4 Yum burgers.