Republic of the Philippines

PARTIDO STATE UNIVERSITY

Camarines Sur

College of Business and Management

Main Campus

Module 6

Consumer Behavior and

Utility Maximization

Name of Student: Section:

Course Code: BAC1 Week number:10 & 11
Course Title: Basic Microeconomics Name of Faculty: Kevin C. Baltar

I. Objective

1. Relate customer satisfaction with factors influencing consumer behavior

2. Compute for marginal utility

3. Explain the law of diminishing marginal utility

Utility Approach

• A utility function shows an individual’s perception of the utility level attained from consuming
each conceivable bundle of goods

The law of diminishing marginal utility

• It state that as a consumer uses up a goods or services, he/she tends to get less and less
satisfied with it through time.

• The law of diminishing marginal utility explains the downward sloping demand curve. Although
consumer wants in general are insatiable, wants for specific commodities can be fulfilled.

• The more of a specific product that consumers obtain, the less they will desire more units of
that product.

Utility is a subjective notion in economics, referring to the amount of satisfaction a person gets from
consumption of a certain item.

Marginal utility refers to the extra utility a consumer gets from one additional unit of a specific product.
In a short period of time, the marginal utility derived from successive units of a given product will
decline. This is known as diminishing marginal utility.
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

Figure 1 and the accompanying table illustrate the relationship between total and marginal utility.
∆𝑇𝑈
To compute for the marginal utility the formula is MU = or MU = TU2-TU1
∆𝑄

a. Total utility and marginal utility divided. PHASE 1 Total utility increases as each additional
Siomai is purchased through the first five, at PHASE 2 utility rises at a diminishing rate since each
Siomai adds less and less to the consumer’s satisfaction. Or known as maximum rate.
b. At some point, marginal utility becomes zero and at PHASE 3 the total utility start to diminish
and Marginal utility is negative at the seventh unit and beyond. If more than six were siomai
purchased, total utility would begin to fall. This illustrates the law of diminishing marginal utility.

The law of diminishing marginal utility is related to demand and elasticity.

a. Successive units of a product yield smaller and smaller amounts of marginal utility, so the consumer
will buy more only if the price falls. Otherwise, it is not worth it to buy more.

b. If marginal utility falls sharply as successive units are consumed, demand is predicted to be inelastic.
That is, price must fall a relatively large amount before consumers will buy more of an item.

Budget line and indifference curve

Budget line

• The graphical representation of the amount of goods can afford. (affordability)

• Depends in goods price and the buyers income

Indifference curve

• A line illustrating a consumers responsiveness or indifferences based on a combination of

product X and Y

• It show the infinite combination of X and Y w/c give same level of satisfaction

(Figure 5.2) Typical Indifference Curve

 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

• Marginal Rate of Substitution

• MRS shows the rate at which one good can be substituted for another while keeping utility
constant

– Negative of the slope of the indifference curve

– Diminishes along the indifference curve as X increases & Y decreases

– Ratio of the marginal utilities of the goods

ACTIVITY:

Instruction: this activity will be submitted in the Google Classroom. (November 23,2020) onward.

Activity. Compute for the Marginal Utility as shown on the table below and Graph explain what will
happen in the phases of the total and marginal utility.

TU MU
1 7
2 13
3 18
4 22
5 25
6 27
7 28
8 28
9 27
10 25

IV. Suggested reference

https://learn.saylor.org/course/ECON101

https://www.khanacademy.org/economics-finance-domain/microeconomics/basic-economic-concepts-
gen-micro

https://www.pfw.edu › introduction to microeconomics - Purdue University Fort Wayne

https://www.google.com/url?sa=t&source=web&rct=j&url=http://164.100.133.129:81/econtent/Uploa
ds/Microeconomics.pdf&ved=2ahUKEwinquna2v3oAhUAyDgGHeSiB88QFjACegQIAhAB&usg=AOvVaw3v
eCWc1NQ8-S8G_572zHEU
 Republic of the Philippines
PARTIDO STATE UNIVERSITY
Camarines Sur

Principles of Microeconomics 1.4. Authored by: OpenStax College. Provided by: Rice University. Located
at: http://cnx.org/contents/6i8iXmBj@10.170:n_POCARx@12/How-Economies-

Can-Be-Organized. License: CC BY: Attribution. License Terms: Download for free at

http://cnx.org/content/col11627/latest

LEGO World - Fan Zone. Authored by: Brickset. Located at:

https://www.�ickr.com/photos/brickset/8491998046/. License: CC BY: Attribution

Sphinx. Authored by: David Stanley. Located at:

https://www.�ickr.com/photos/davidstanleytravel/8590203473/. License: CC BY: Attribution

https://learn.saylor.org/course/ECON101

https://www.khanacademy.org/economics-finance-domain/microeconomics/basic-economic-concepts-
gen-micro

https://www.pfw.edu › introduction to microeconomics - Purdue University Fort Wayne

https://www.google.com/url?sa=t&source=web&rct=j&url=http://164.100.133.129:81/econtent/Uploa
ds/Microeconomics.pdf&ved=2ahUKEwinquna2v3oAhUAyDgGHeSiB88QFjACegQIAhAB&usg=AOvVaw3v
eCWc1NQ8-S8G_572zHEU

https://course.lumenlearning.com/wmpen-microeconomics/