PPT - Theory of Consumer Behavior | Business Economics for CA Foundation PDF Download

 Page 1


Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
The purpose of the theory of demand is to determine the various 
factors that affect demand. 
Part 6
    Determinants:
1. The price of the commodity
2. Other prices
3. Income
4. Tastes
5. Income distribution
6. Total population
7. Wealth
8. Government policy
Page 2


Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
The purpose of the theory of demand is to determine the various 
factors that affect demand. 
Part 6
    Determinants:
1. The price of the commodity
2. Other prices
3. Income
4. Tastes
5. Income distribution
6. Total population
7. Wealth
8. Government policy
Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
• The traditional theory of demand emphasis on consumer’s 
demand for durable and non-durable goods.
• It does not deal with investment goods.
• It is only a fraction of the total demand in the economy as a 
whole.
• The market demand is assumed to be the summation of the 
demands of individual consumers.
• If a consumer gets more utilities from a commodity, he would 
be willing to pay a higher price and vice-versa.
Part 6
Page 3


Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
The purpose of the theory of demand is to determine the various 
factors that affect demand. 
Part 6
    Determinants:
1. The price of the commodity
2. Other prices
3. Income
4. Tastes
5. Income distribution
6. Total population
7. Wealth
8. Government policy
Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
• The traditional theory of demand emphasis on consumer’s 
demand for durable and non-durable goods.
• It does not deal with investment goods.
• It is only a fraction of the total demand in the economy as a 
whole.
• The market demand is assumed to be the summation of the 
demands of individual consumers.
• If a consumer gets more utilities from a commodity, he would 
be willing to pay a higher price and vice-versa.
Part 6
Definitions:
Part 1
Part 2
Part 3
Part 4
Part 5
1. Utility: Utility is wants satisfying power of a commodity 
which varies from person to person. The concept of utility is 
ethically neutral as harmful and useful things are both 
considered. The value-in-use of a commodity is the satisfaction 
which we get from the consumption of a commodity.
Part 6
2. Marginal utility: The additional utility derived from additional unit 
of a commodity. It refers to net addition made to the total utility by the 
consumption of an extra unit of a commodity. 
3. Total utility: The sum of utility derived from the different units of a 
commodity consumed by a consumer. The amount of utility derived from 
the consumption of all units of a commodity which are at the disposal of 
the consumer.
Page 4


Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
The purpose of the theory of demand is to determine the various 
factors that affect demand. 
Part 6
    Determinants:
1. The price of the commodity
2. Other prices
3. Income
4. Tastes
5. Income distribution
6. Total population
7. Wealth
8. Government policy
Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
• The traditional theory of demand emphasis on consumer’s 
demand for durable and non-durable goods.
• It does not deal with investment goods.
• It is only a fraction of the total demand in the economy as a 
whole.
• The market demand is assumed to be the summation of the 
demands of individual consumers.
• If a consumer gets more utilities from a commodity, he would 
be willing to pay a higher price and vice-versa.
Part 6
Definitions:
Part 1
Part 2
Part 3
Part 4
Part 5
1. Utility: Utility is wants satisfying power of a commodity 
which varies from person to person. The concept of utility is 
ethically neutral as harmful and useful things are both 
considered. The value-in-use of a commodity is the satisfaction 
which we get from the consumption of a commodity.
Part 6
2. Marginal utility: The additional utility derived from additional unit 
of a commodity. It refers to net addition made to the total utility by the 
consumption of an extra unit of a commodity. 
3. Total utility: The sum of utility derived from the different units of a 
commodity consumed by a consumer. The amount of utility derived from 
the consumption of all units of a commodity which are at the disposal of 
the consumer.
Marginal Utility Analysis
Part 1
Part 3
Part 4
Part 5
Part 6
This theory is formulated by Alfred Marshall, a British 
Economist, seeks to explain how a consumer spends his income 
on different goods and services so as to attain maximum 
satisfaction.
Part 2
Page 5


Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
The purpose of the theory of demand is to determine the various 
factors that affect demand. 
Part 6
    Determinants:
1. The price of the commodity
2. Other prices
3. Income
4. Tastes
5. Income distribution
6. Total population
7. Wealth
8. Government policy
Introduction
Part 1
Part 2
Part 3
Part 4
Part 5
• The traditional theory of demand emphasis on consumer’s 
demand for durable and non-durable goods.
• It does not deal with investment goods.
• It is only a fraction of the total demand in the economy as a 
whole.
• The market demand is assumed to be the summation of the 
demands of individual consumers.
• If a consumer gets more utilities from a commodity, he would 
be willing to pay a higher price and vice-versa.
Part 6
Definitions:
Part 1
Part 2
Part 3
Part 4
Part 5
1. Utility: Utility is wants satisfying power of a commodity 
which varies from person to person. The concept of utility is 
ethically neutral as harmful and useful things are both 
considered. The value-in-use of a commodity is the satisfaction 
which we get from the consumption of a commodity.
Part 6
2. Marginal utility: The additional utility derived from additional unit 
of a commodity. It refers to net addition made to the total utility by the 
consumption of an extra unit of a commodity. 
3. Total utility: The sum of utility derived from the different units of a 
commodity consumed by a consumer. The amount of utility derived from 
the consumption of all units of a commodity which are at the disposal of 
the consumer.
Marginal Utility Analysis
Part 1
Part 3
Part 4
Part 5
Part 6
This theory is formulated by Alfred Marshall, a British 
Economist, seeks to explain how a consumer spends his income 
on different goods and services so as to attain maximum 
satisfaction.
Part 2
Marginal Utility Analysis
Part 3
Part 4
Part 5
Assumptions of utility analysis:
1. Utility is based on the cardinal concept.
2. Utility is measurable and additive of goods.
3. The marginal utility of money is assumed to be constant.
4. The hypothesis of independent utility.
5. The consumer is rational.
6. He has full knowledge of the availability of commodities and  
   their technical qualities.
7. Possesses perfect knowledge of the choice of commodities.
8. There are no substitutes.
9. Utilities are not influenced by variations in their prices.
10. The theory ignores complementary between goods.
Part 6
Part 1
Part 2