Title Consumer behaviour.pptx ✅

Unit 2 : Consumer Behavior Preference ordering: the consumption decision; consumer’s equilibrium ( with indifference curve approach); changes in price and derivation of compensated and uncompensated demand curves; comparative statics of consumer behavior; types of goods; concept of duality in consumer theory; the expenditure function; the indirect utility function; estimating cost of living; Lancasterian demand theory and linear expenditure system; revealed preference theory Microeconomics M.A. first semester
Utility: is the power of goods and services to satisfies the human wants. There are two hypothesis about the measurement of utility. 1. Cardinal utility analysis (Marshallian utility hypothesis) 2. Ordinal utility hypothesis (Hicksian utility analysis) Utility may be total and marginal utility. Total utility is the sum of all the utilities derived with consuming all the available quantity of a commodity. TU= ∑ MU = MU1 +MU2+……..+MUn Marginal utility is an additional utility derived with consuming an additional unit of the commodity MU= dTU/dQ Preference ordering; and consumption decision
This hypothesis is based on the assumptions of the cardinal measurement of utility, constant marginal utility of money, introspective approach of analysis, law of diminishing marginal utility, independent utility. There are two cases in which consumers equilibrium can be explain one commodity case law of diminishing marginal utility. Two commodity case law of Equi- marginal utility/ law of substitution Consumers demand any goods and services because of the utility held in the goods. So consumers’ preferences is depend on the utility of goods and services. Cardinal utility analysis (Marshallian utility analysis)
It is invented by Edgeworth and Fisher independently Pareto, Johnson, Slutsky also has the contribution to use of indifference curve in the various aspect of consumer behaviour English economists, J.R. Hicks and R.G.D Allen a paper “A Reconsideration of the theory of Value” Hicks reproduced the indifference curve theory of consumer’s demand in his book ‘Value and capital’ in 1939 with the decomposition of price effect into substitution effect and income effect. Ordinal utility analysis/ Hicksian approach/ Indifference Curve approach