The Consumer Behavior

Prepared by: Cherry Lou Duque, MBA

 LEARNING OBJECTIVES
1. Explain the importance of the Utility Approach.
2.Illustrate the Marginal Utility and the Law of
Diminishing Marginal Utility.
3. Determine the conditions of Consumer Equilibrium
and the Indifference Curve.
4. Computation of Marginal Utility, Total Utility and
Total Maximization of Utility

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

THE CONSUMER BEHAVIOR

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 THE CONSUMER BEHAVIOR

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 THE CONSUMER BEHAVIOR

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 INDIVIDUAL PREFERENCES

https://www.youtube.com/watch?v=iOmDo5jLFw8

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 INDIFFERENCE MAP

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

MARGINAL RATE OF SUBSTITUTION

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

PERFECT SUBSTITUTE AND PERFECT COMPLEMENTS

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

Source : https://www.youtube.com/watch?v=iZFpoJ6uixE
THE UTILITY FUNCTIONS AND INDIFFERNCE CURVE

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

EFFECT OF CHANGE IN INCOME ON THE BUDGET LINE

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

EFFECTS OF A CHANGE IN PRICE ON THE BUDGET

The maximizing market basket must satisfy two

conditions:
1. It must be located on the budget line.
2. It must give the consumer the most
preferred combination of goods

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 TOTAL UTILITY AND MARGINAL UTILITY
The solution to the consumer's problem, which TOTAL UTILITY is the sum total of utility derived from each unit
entails decisions about how much the consumer will of a commodity. Suppose the consumer consumes “n” unit of a
consume several goods and services, is referred to Commodity, then his total utility from unit is:
as CONSUMER EQUILIBRIUM TU = MC1 + MC2 ……MCn
Where: TUn Total Utility of n units of the commodity
When consumers make choices about the number
MU1 Marginal Utility of the 1st Unit of the commodity
of goods and services to consume, it is presumed MU2 Marginal Utility of the 2nd unit of commodity
that their objective is to maximize total utility MUn Marginal Utility of the n unit of the commodity
Marginal utility (MU) refers to the change in total
utility as an individual consumes each additional
unit of the commodity.
The UTILITY is a term in economics that refers to
the total satisfaction received from consuming a
good or service.
SATURATION POINT is a situation in which the product TOTAL UTILITY is the aggregate amount of satisfaction or
has reached all the potential customers and the demand of fulfillment that a consumer receives through the consumption
the products is now less than the supply of the products. of a specific good or service.

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

UTILITY is another word for “happiness”. How
Happy we are as consumers. An increase in
Utility means consumers are better off and a
Decrease are worse. It is measured with “Utils”
THE UTILITY MAXIMIZATION RULE

https://www.youtube.com/watch?v=5Ei5OiIk_X0

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

 TOTAL UTILITY AND MARGINAL UTILITY
The Utility Maximization Rule: A consumer You have $16 to spend on desert
Should buy goods up to the point where the last Price of Ice Cream =$2 Price of Cake = $4
money spent on every good provided the same 16
marginal utility as the last money spent in every Q of TU MU MU/ Q of TU MU MU/ -4
Other good. IC of IC of IC P Cake Cake Cake P 12
1 4 4 2 1 10 10 2.5 -6
MUa = Mub = MUc 6
2 7 3 1.5 2 18 8 2
Pa Pb Pc -4
3 9 2 1 3 24 6 1.5 2
Assume you have $16 to spend on dessert. Determine 4 10 1 .5 4 28 4 1 -2
Each of the following: 0
5 10 0 0 5 30 2 .5
1. The total utility you enjoy from Ice Cream and Cake at
each level of consumption.
2. The optimal combination of ice cream and cake you
Would buy to maximize your total utility. Answer No.2 is 3 cake and 2 Ice Cream
3. The amount of total utility you enjoy at that level of
Consumption. Answer No. 3 is 31 utils

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS
 Discussed the Consumer Behavior Theory,
Individual Preferences, Indifference Map.
 Marginal Rate of Substitution, Perfect
Substitute, Perfect Compliment.
 Effect of Change and Effect of Price.
 Total Utility, Marginal Utility, Law of
Diminishing Return
Individual Activity and Final Quiz No. 1

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS

DR. FILEMON C. AGUILAR MEMORIAL COLLEGE OF LASPIÑAS