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PPT - Theory of Consumer Behaviour
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Page 1 THEORY OF CONSUMER BEHAVIOUR Page 2 THEORY OF CONSUMER BEHAVIOUR LEARNING OBJECTIVES • To understand the economic aspects of consumer behaviour through cardinal and ordinal approaches • To study Cardinal Utility theory • To study Ordinal Utility theory, i.e. Indifference Curve Analysis Page 3 THEORY OF CONSUMER BEHAVIOUR LEARNING OBJECTIVES • To understand the economic aspects of consumer behaviour through cardinal and ordinal approaches • To study Cardinal Utility theory • To study Ordinal Utility theory, i.e. Indifference Curve Analysis Introduction to Consumer Behaviour • In economics the study of consumer behaviour occupies an important place • The problem of a consumer consists of three things: (a) the object, (b) the constraints, and (c) the decision variable • Object – To maximize total utility (Satisfaction) • Constraint – Limited Resources (Income) • Decision Variable – the quantity purchased using limited resources Page 4 THEORY OF CONSUMER BEHAVIOUR LEARNING OBJECTIVES • To understand the economic aspects of consumer behaviour through cardinal and ordinal approaches • To study Cardinal Utility theory • To study Ordinal Utility theory, i.e. Indifference Curve Analysis Introduction to Consumer Behaviour • In economics the study of consumer behaviour occupies an important place • The problem of a consumer consists of three things: (a) the object, (b) the constraints, and (c) the decision variable • Object – To maximize total utility (Satisfaction) • Constraint – Limited Resources (Income) • Decision Variable – the quantity purchased using limited resources Cardinal Utility Approach • Developed by Alfred Marshall • The numbers 1, 2, 3, 4, 5 … are cardinal numbers. In contrast, the numbers • Utility is the want satisfying power of a commodity or a service. It is a subjective concept and it resides in the mind of the consume • The concept of cardinal utility assumes that the measurement of utility of different commodities is possible. For example, the consumption of an apple may give 50 units of utility whereas an orange may give only 40 units Page 5 THEORY OF CONSUMER BEHAVIOUR LEARNING OBJECTIVES • To understand the economic aspects of consumer behaviour through cardinal and ordinal approaches • To study Cardinal Utility theory • To study Ordinal Utility theory, i.e. Indifference Curve Analysis Introduction to Consumer Behaviour • In economics the study of consumer behaviour occupies an important place • The problem of a consumer consists of three things: (a) the object, (b) the constraints, and (c) the decision variable • Object – To maximize total utility (Satisfaction) • Constraint – Limited Resources (Income) • Decision Variable – the quantity purchased using limited resources Cardinal Utility Approach • Developed by Alfred Marshall • The numbers 1, 2, 3, 4, 5 … are cardinal numbers. In contrast, the numbers • Utility is the want satisfying power of a commodity or a service. It is a subjective concept and it resides in the mind of the consume • The concept of cardinal utility assumes that the measurement of utility of different commodities is possible. For example, the consumption of an apple may give 50 units of utility whereas an orange may give only 40 units • Total utility is the sum of the utilities obtained from all units of a commodity consumed. The more of a commodity consumed per unit of time, the greater will be the total utility or satisfactionfromituptoacertainpoint • At some point total utility will reach a maximum and this is called the saturation point beyond which there is no satisfaction from the consumption. After attaining the saturation point, if there is more consumption, it will cause the total utility to decrease. Symbolically, total utility can be expressedas:Read More
FAQs on PPT - Theory of Consumer Behaviour
| 1. What's the difference between cardinal utility and ordinal utility in consumer behaviour? |  |
Ans. Cardinal utility assigns numerical values to satisfaction levels (e.g., 10, 20, 30 units), while ordinal utility ranks preferences without specific numbers (first, second, third choice). Cardinal utility assumes satisfaction is measurable; ordinal utility only requires ranking goods by preference. Ordinal approach is preferred in modern economic theory for consumer decision-making analysis.
| 2. How does the law of diminishing marginal utility affect what consumers actually buy? | |
Ans. The law of diminishing marginal utility states that additional units of a good provide decreasing satisfaction. As consumers buy more, each extra unit adds less happiness than the previous one. This principle explains why consumers eventually reduce purchases and why prices must drop to encourage buying more units of the same product.
| 3. What exactly is an indifference curve and why do economists use them? | |
Ans. An indifference curve maps combinations of two goods that provide equal satisfaction to a consumer. All points on the curve represent the same utility level. Economists use indifference curves because they graphically show consumer preferences, substitution rates between goods, and purchasing decisions without needing exact utility numbers in CBSE Economics.
| 4. Why does the budget line slope downward and what does it tell us about affordability? | |
Ans. The budget line slopes downward because spending more on one good means spending less on another within a fixed income. Its slope reflects the price ratio between goods and shows all affordable combinations a consumer can purchase. The steeper the slope, the more expensive one good is relative to the other.
| 5. How do I find the equilibrium point where a consumer stops buying and feels satisfied? | |
Ans. Consumer equilibrium occurs where the indifference curve is tangent to the budget line. At this point, the marginal rate of substitution equals the price ratio of goods. Consumers maximise satisfaction here because moving away reduces total utility. Understanding this tangency condition is essential for solving consumer behaviour problems in Class 11 Economics examinations.
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