PPT - Theory of Consumer Behaviour Commerce Notes | EduRev

Economics Class 11

Commerce : PPT - Theory of Consumer Behaviour Commerce Notes | EduRev

 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:
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