Economics

The theory of consumer behavior

demand

is one of the most important aspects of managerial. economics since a business entity will not be established nor will survive if there is no demand for a product.

Consumers

are parties that are of great interest in understanding demand. Businesses care about consumer demand because this reveals how much a consumer is willing to pay for a product.

utility

An individual's pleasure, happiness, or satisfaction is called

Consumer theory

argues that individual consumption decisions are always made because people desire to maximize their satisfaction from consuming various goods and services.

the utility and the indifference curves approaches.

In social science, economics uses two approaches in understanding behavior of consumers:

utility function

The consumption of individual for any preferred goods and services is represented by _______, which describes the relationship between the number of goods or services consumed and the level of satisfaction.

utility function

The __________ measures the level of satisfaction a consumer receives from any good or service.

Economists, marginal utility (MU)

________ refer to _________ as the rate at which total utility changes as the level of consumption rises.

MU= △TU/△Q

The marginal utility of any good is thus:

law of diminishing marginal utility

After some point, as consumption of goods increase, the marginal utility of that goods will begin to fall.

Indifference Curve

By the term itself, this approach makes use of graphs as aid for analysis.

1. higher indifference curves are better

2. Indifference curves do not intersect

3. Indifference curves are downward sloping to the right

4. Indifference curves are convex to the point of origin

Indifference Curves have four essential properties

higher indifference curves are better

Consumers prefer more than less, they prefer higher indifference curves that represent greater combinations of goods and services to lower indifference curves that represent smaller combinations of goods and services.

Indifference curves do not intersect

This stems from the fact that goods and services both provide consumer benefits, and reflect the more is better principle. If indifference curves crossed, this principle would be violated.

Indifference curves are downward sloping to the right

The slope of the indifference curve shows the trade-off between goods and services.

Indifference curves are convex to the point of origin

The slope of an indifference curve shows the rate at which consumers are willing to trade-off goods and services.

indifference map

is a graph containing a set of indifference curves showing two commodities among which describe a person's preferences.

infinite number

On an indifference map, a consumer has an _______ of indifference curves that depict each level of their satisfaction.

budget line

 Hence, the_________ provides the budget constraint of an individual.

budget constraint

However, the reason why we cannot do that on a daily basis is because we have limited budget on different types of commodities. This is what we call ___________.

Budget line

is a graph that shows the combinations of goods or services of a person, where the total amount of money spent is proportionate to his income.

right.

Increase in income causes the budget line to shift to the _____

left.

Increase in price causes the budget line to shift to the _________

Engel curve

The ________ shows the relationship between the amounts of product that people are willing to buy and their corresponding Income.