MICRO ECONOMICS

UNIT-II

Consumer’s Behaviour

 Consumer

 Consumer’s Behaviour

Utility Quality Capacity

“
” Utility is the capacity of commodity
or services to satify human wants.

(subjective concept

(Measurement of Utiliy

Util

(Cardinal
Approch

Assumption of Utility
i
ii
iii
iv Objective Subjective
and relative
v Intensity of want
vi

New way of Study Economics Page1

 MICRO ECONOMICS

Type of Utility

i Marginal Utility
ii Total Utility
iii Average Utility
i Marginal Utility

MUn = TUn – TUn-1

MUn= n
TUn= n
TUn-1 = n-1

TU
MU 
Q

MU =
TU =
Q =

MU
1 25
2 20
3 15
4 10
5 5
6 0
7 -5
8 -10

New way of Study Economics Page2

 MICRO ECONOMICS

30
Marginal Utility

25
20
15 Saturation point
10
5
O Y
X
30
Marginal Utility

-5 1 2 43 5 6 8
25
20
15
10
5
O X
-5 1 2 3 4 5 6 8
7
-10 MU
Unit of Bread

7
-10 MU
Unit of Bread

(Explanation

Saturation point

ii Total Utility

It is the aggregate of the utility that a consume

derives from the consumption of a certain amount of a commodity.

TU = MU1 +MU2 +MU3+ -----+MUn

TU = MUn

TU =
MU =
n=

New way of Study Economics Page3

 MICRO ECONOMICS

MU TU
1 25 25
2 20 25 + 20 = 45
3 15 45 + 15 = 60
4 10 60 + 10 = 70
5 5 70 + 5 = 75
6 0 75 + 0 = 75
7 -5 75 – 5 = 70
8 -10 70 – 10 = 60

Y M Maximum satisfaction point

80
70
60
Marginal Utility

50 TU
40
030
20
10
O Y
X
3
30
Marginal Utility

-5 1 2 43 5 6 7 8
25
20
15
10
5
O X
-5 1 2 3 4 5 6 8
7
-10 MU
Unit of Bread

-10
Unit of Bread

iii Average Utility

TU
AU 
n
AU =
N=

New way of Study Economics Page4

 MICRO ECONOMICS

MU TU AU
1 25 25 25/1 = 25
2 20 45 45/2 = 22.5
3 15 60 60/3 = 20
4 10 70 70/4 =17.5
5 5 75 75/5 = 15
6 0 75 75/6 = 12.5
7 -5 70 70/7 = 10
8 -10 60 60/8 = 7.5

30
Marginal Utility

25
20
15
10
5 AU
O X
-5 1 2 3 4 5 6 7 8
-10
Unit of Bread

Relationship between Marginal Utility and Total Utility

i.
ii.

iii.

iv. zero

v.

New way of Study Economics Page5

 MICRO ECONOMICS

Y M Maximum satisfaction point

80
70
60
Marginal Utility

50 TU
40
0
30
20 Full satisfaction point
10
O X
-5 1 2 3 4 5 6 7
8
-10 MU
Unit of Bread

Low of Diminishing Marginal Utility

Itroduction

It states that as the consumer

has, consumed or used more and more of a commodity the marginal
utility of the commodity falls.
Assumptions or Limitation
i.
ii.
iii.
iv.
v.
vi.
vii.

New way of Study Economics Page6

 MICRO ECONOMICS

Exceptions
i.
ii.
iii.
iv.
v.

MU Y
1 25 30
Marginal Utility

2 20 25
3 15 20 Saturation Point
4 10 15 point
5 5 10
05
6 0
O X
7 -5 -5 1 2 3 4 5 6 8
8 -10 -10
7
MU
Unit of Bread

Consumer’s Equlibrium

Maximum Satisfaction Consumer’s

equilibrium is a situation in which the consumer gets maximum
satisfaction out of his limited money income.
New way of Study Economics Page7
 MICRO ECONOMICS

Assumptions
i. Rational

ii.
iii.
iv.
v.
vi.
vii.

A By Utility Analysis

i
ii

Consumer’s Equlibrium : Single Commodity

MUx
Px
MUx = Px

MUx = Px. MUm

MUx
or,  MUm
Px

MUx = x
Px = x
MUm =

a MUx >Px
b MUx <Px,
New way of Study Economics Page8
 MICRO ECONOMICS

Y
X Px MUx MUx = Px
50
1 30 40 40 E1

MU / P
2 30 35 Mux>Px E E2
30 P
3 30 30 MUx = Px
20 Loss
4 30 25
10
5 30 20 MUx < Px MUx
O X
6 30 15
1 2 3 4 5 6 7 8

x-
x-

E
MUx = Px MUx>Px
MUx < Px

x y
Px Py MUx MUy

MUx = Px.MUm ----------- (i)

MUy = Py.MUm ----------- (ii)

(i) (ii)

New way of Study Economics Page9

 MICRO ECONOMICS

MUx Px.( MUm)


MUy Py.( MUm)
MUx Px
or, 
MUy Py

MUx MUy
or,   MUm
Px Py

X Y

Y
MUx MUy
50
1 50(i) 38(iv) 40
MU /P

2 45(ii) 36(v) 30
3 40(iii) 32(vii) P
20
4 35(vi) 25(x)
10 MU
5 30(viii) 18 MUy
x
O X
6 25(ix) 15
1 2 3 4 5 6 7 8 9
7 20 10
Unit of X & Y
8 15 5
9 10 2
10 5 1

Indifference curve Analysis)

Indiffernce curve analysis

I, II,
III,………… (Ordinal Approach

New way of Study Economics Page10

 MICRO ECONOMICS

Indifference curve

20 Indifference Curve
X Y
A 1 20 15
B 2 15 11

Goods - Y
C 3 11 8
D 4 8 6
E 5 6 5 IC
F 6 5 O X
-5 1 23 4 5 6 8
7
-10
Goods-X

A,B,C,D,E,F
IC

Indifference Map X

Indifference Map
Goods - Y

(origin point
IC3
IC2
o IC1
X
Goods-X

(Assumptions of Indifference Curve Analysis)

1 (Rational Behaviour of the Consumer)

2. (Ordinal Viewpoint)

3. (Consistent Behaviour)

4. द (Diminishing Marginal Rate of Substitution)

New way of Study Economics Page11

 MICRO ECONOMICS

5. , आद , आ

6. (Weak Ordering)

7. (Homogeneous and Divisible)

(Characteristics of Indifference Curves)
1. द द आ ( द )

2. द द

3. द द -द

4. द

5. द द ओ द (Convex to the origin) MRS...

6. द आ ओ द

7. द (Curvature) द ओ
( द , द ओ
)

8. द

(Monotonic Preference): द ओ (
) द इ द ओ - -
, द द
(Consumer's preference becomes monotonic if the consumer, between various bundles of two goods,
prefers the bundle which has more of atleast one of the goods and no less of other goods as
compared to the other bundle.)

द - द द द (9, 8) (8, 6) द
(9,8) | द द ओ
(8, 6) (9,8) द इ (2, 2) (1,
1), (2, 1) (1, 2) द

र (Marginal Rate of Substitution):

इ द इ इ ,
द

(Leftwitch) , "x Y र (MRS) Y ह

ह X र र र
र ह "

New way of Study Economics Page12

 MICRO ECONOMICS

X Y
X Y
MRSxy= -Y/X
A 1 20 -
B 2 15 5:1
C 3 11 4:1
D 4 8 3:1
E 5 6 2:1
F 6 5 1:1

Y
A MRSxy=
Y1
-Y
Goods - Y

Y2 B
X

IC Convex
o X
X1 X2
Goods-X

 Budget Line or Price Line

Px.X + Py. Y = M

M=
Px =X
X =X
Py =Y
Y =Y

 Budget Set

New way of Study Economics Page13

 MICRO ECONOMICS

( )

( )

New way of Study Economics Page14