FOREIGN TRADE UNIVERSITY

CONSUMER BEHAVIOR
THEORY
MPA PHẠM PHƯƠNG THẢO
CAN MONEY BUY
HAPPINESS?
I. UTILITY THEORY
1. WHAT IS ULTILITY?

Utility is the that a consumer gets from

consuming a given bundle of goods or service (market basket)
1. WHAT IS UTILITY?

= +
𝐓𝐔-.%/( 𝐔!á#$ %ỳ 𝐔'(à *ữ,
1. WHAT IS UTILITY?

Marginal Utility (MU)

2. DIMINISHING MARGINAL UTILITY
 2. DIMINISHING MARGINAL UTILITY

N TU MU

0 0 ?
1 4
?
2 7
?
3 9
?
4 10
?
5 10
 2. DIMINISHING MARGINAL
2. QUY LUẬT UTILITY
APPLICATION 1
ÍCH LỢI CẬN BIÊN GIẢM DẦN
Diminishing marginal utility and 5

MU, P
demand curve
4

3
MU = D
2

0
0 1 2 3 4 5 6
Q
DOES MONEY
BRING
HAPPINESS?
 2. DIMINISHING MARGINAL UTILITY
APPLICATION 2

Consumer Surplus: the maximum amount a consumer will be willing

to pay for a good depends upon the expected utility (benefits) of that
good.

CS= MU - P
CONSUMER SURPLUS

Cup of milk
tea MU CS

1 40,000

2 30,000

3 20,000

4 10,000

5 0,000
 II.
CONSUMER
CHOICE
OPTIMIZATION
THREE ASSUMPTIONS ABOUT
CONSUMER PREFERENCES

Completeness

More is better

Transitivity
2. INDIFFERENCE CURVE
Indifference curve is

MILK TEA BREAD

A1 5 4
A2 2 10
A3 1 20
B 1 11
C 5 20
2. INDIFFERENCE CURVE
2.1. Four properties of indifference curve
Y

U3

U2
U1
X
2. INDIFFERENCE CURVE
Marginal rate of substitution (MRSXY) :

∆"
MRSXY =
∆#
Homer has utility function: UHomer = 𝐵 ∗ 𝑇 where B stands for Bread
(unit is bread), T stands for Milk Tea (the unit is cup). Calculate
MRSBT(∆milk tea/∆bread) = - MUB/MUT
2. INDIFFERENCE CURVE
2.2. Extreme examples

Two perfect complements

2. INDIFFERENCE CURVE
2.2. Extreme examples

Two perfect substitutes

HOW DOES IT MANIPULATE UTLITY?
3. BUDGET LINE
Budget line/budget constraint: the limit on the consumption bundles that a
consumers can afford.

Budget line for basket of 2 goods X / Y:

3. BUDGET LINE
Homer has 100,000 VND/week, Pmilk tea 10,000 VND/cup and Pbread 5,000
VND/cake. Write Homer's budget line equation.
EXTREME CASES
 3.3. BUDGET SHIFT
3.3.1. Income changes
 3.3. BUDGET SHIFT
3.3.2. The price of goods
4. OPTIMAL CONSUMPTION OF GOODS
EXTREME CASE
5. THE FORMATION OF DEMAND
 III. IMPACT OF
CHANGE OF INCOME
&PRICE
1. IMPACT OF INCOME CHANGE
1. IMPACT OF INCOME CHANGE
2. IMPACT OF PRICE CHANGES
STAMPS VS. FINANCIAL
SUPPORT?
STAMPS VS. FINANCIAL SUPPORT?