Essay about Theory of Consumer Behaviour

987 Words Jun 21st, 2014 4 Pages
Theory of Consumer Behaviour

There are two main approaches to the theory of consumer behaviour to demand in Economics. The first approach is the Marginal Utility or Cardinalist Approach. The second is the Ordinalist Approach.


Human wants are unlimited and they are of different intensity. The means at the disposal of a man are not only scarce but they have alternative uses. As a result of scarcity of resources, the consumer cannot satisfy all his wants. He has to choose as to which want is to be satisfied first and which afterward if the resources permit. The consumer is confronted in making a choice. For example, a man’ is thirsty. He goes to the market and satisfies his thirst by purchasing coca’-cola
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For example,. poison is injurious to health but it gives subjective satisfaction to a person who wishes to die. We can say that utility is value neutral.

Econ01 Chapter 5 - Theory of Consumer Behavior
Theory of Consumer Behavior

Our analysis of demand permits us to determine the underlying factors affecting the level of consumer demand of a given commodity. An increase in the price of a commodity, we expect consumers to react by decreasing the quantity they want to buy. Our discussion of elasticity of demand further develop our understanding of demand by showing to us the extent of how consumers react to adjustment in price.

In this chapter, we further explain the behavior of demand by analyzing consumer behavior. The theory of consumer behavior describes how consumers buy different goods and services. Furthermore, consumer behavior also explains how a consumer allocates its income in relation to the purchase of different commodities and how price affects his or her decision. There are two theories that seek to explain consumer behavior. These are the utility theory and the indifference preference theory.
Consumer Behavior-Assumptions

1. Rational Consumer
2. Budget Constraints
3. Consumer Preferences
The Utility Theory of Demand

The utility theory explains consumer behavior in relation to the satisfaction that a consumer gets the moment he consumes a good. This theory was developed and introduced in 1870 by a

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