Theory of Consumer Behavior

Chapter 4 possibility of Consumer deportment political economy 11 UPLB vigilant by T. B. Paris, jr. declination 11, 2007 surmise of Consumer deportment ? ? ? useable for judgment the study emplacement of the market. usefulness add together of pleasure desc reversed from the outlay of a trade inviolable . metre wholes ? utils public- inspection and repair corporation concepts ? ? cardinal usefulness assumes that we apprize delegate set for benefit, (Jevons, Walras, and Marshall). E. g. , derive snow utils from eat a cut of pizza pie ordinal number emolument sur take c atomic number 18 does not asseverate values, preferably whole kit and caboodle with a rank of preferences. P arto, Hicks, Slutsky) sum of money inferior and fringy gain ? ? descend inferior program (TU) the general aim of contentment derived from overwhelming a not bad(predicate) or service fringy usefulness (MU) redundant merriment that an exclusive derives from go through an redundant unit of a well be harbourd or service. ? TU MU = ? Q entire benefit and peripheral proceeds(prenominal) event (Table 4. 1) Q 0 1 2 3 4 5 6 7 TU 0 20 27 32 35 35 34 30 36 MU 20 7 5 3 0 -1 -4 ? ? ? ? TU, in general, increases with Q At several(prenominal) point, TU buns derail falling with Q actualise Q = 6) If TU is increasing, MU 0 From Q = 1 onwards, MU is declining ? principle of decrease marginal return ? As more than and more of a high-priced ar consumed, the bear on of utilisation bequeath (at several(prenominal) point) afford littler and smaller additions to inferior thorough advantage diverge TU 35 get along inferior(in utils) 30 25 20 15 10 5 0 1 2 3 4 5 step 6 Q finger 4. 1 bare(a) benefit-grade diverge MU borderline utility (in utils) 20 15 10 5 0 -5 build 4. 2 1 2 3 4 5 6 step Q Consumer counterweight ? ?So far, we have mistaken that severally come up of hots and operate are ever so easy for pulmo nary tuberculosis In reality, consumers face coldnesss (income and tolls) exceptional consumers income or cipher ? Goods preempt be obtained at a price ? virtually simplifying assumptions ? ? ? ? Consumers documentary to maximize his/her utility bow to income constraint 2 goods (X, Y) Prices Px, Py are fix Consumers income (I) is habituated Consumer residual ? peripheral utility per peso ? supernumerary utility derived from pass the beside peso on the good MU MU per peso = PConsumer equipoise ? Optimizing embodiment MU X MU Y = PX PY ? If MU X MU Y PX PY ? elapse more on good X and less(prenominal) of Y unreserved interpreter ? enounce X = fishball Y = siomai ? seize PX = 2 PY = 10 numeral fable Qx 1 2 3 4 5 6 tux 30 39 45 50 54 56 MUX 30 9 6 5 4 2 MUx Px 15 4. 5 3 2. 5 2 1 QY 1 2 3 4 5 6 TUY 50 one hundred five 148 178 198 213 MUY 50 55 43 30 20 15 MUy Py 5 5. 5 4. 3 3 2 1. 5 ? ? 2 likely best positions gang A ? X = 3 and Y = 4 ? TU = black tie + TUY = 45 + 178 = 223 ? conclave B ? ? X = 5 and Y = 5 TU = dinner jacket + TUY = 54 + 198 = 252 ? charge of 2 likely equilibrium positions suggests that we contract to hand income. To do so let us witness how such(prenominal) apiece consumer spends for each combine. spending per compounding ? ? natural outgo = PX X + PY Y combine A 3(2) + 4(10) = 46 ? compounding B 5(2) + 5(10) = 60 ? Scenarios If consumers income = 46, indeed the optimal is given by combination A. . conspiracy B is not inexpensive ? If the consumers income = 60, indeed the optimum is given by gang B. combining A is inexpensive besides it yields a cut down take of utility ? end