STATISTICAL ASSISTANT Gr 2
ECONOMICS
Theory of Consumer Behavior &
Utility Functions
(Exam Points)
Theory of Consumer Behaviour
➢ Consumer behaviour deals with the way
consumers spend their income on different
services & goods.
➢ Microeconomic concept that studies how people
decide to spend their money based on their
individual preferences & budget constraints.
➢ It deals with the various stages a consumer goes
through before purchasing products or services for
his / her end use.
NOTE :
Microeconomics - Study of economic activity at the
level of individuals, households & businesses
Macroeconomics - Study of the economy as a whole.
Which of the following statements is true about
consumer behaviour?
A) Consumer behaviour is the study of microeconomics.
B) Consumer behaviour is the study of
macroeconomics.
C) Both A & B
D) None of the above
_______________ is nothing but willingness of consumers
to purchase products & services as per their taste,
need and of course pocket.
A) Consumer Behavior
B) Consumer Interest
C) Consumer Attitude
D) Consumer Perception
Maslow's Hierarchy of Needs
➢ It is a psychological theory that explains human
motivation & is often used to understand consumer
behaviour.
➢ Understanding Maslow's hierarchy of needs can
help businesses understand how consumers
decide what they want & need.
➢ The theory states that people are motivated to
fulfill 5 basic needs in a hierarchical order.
1) Physiological Needs - Food, water, sleep & oxygen
2) Safety needs - Job security, financial security &
health
3) Love & belonging needs - Friendship, intimacy,
family & love
4) Esteem needs Recognition and status
5) Self-actualization needs - Reaching one's full
potential
Maslow's hierarchy of needs, food, water, sleep, and to
an extent, sex, are considered as __________ motives.
A) Safety
B) Self -actualization
C) Physiological
D) Love & belonging
Utility
➢ Utility is the satisfaction a consumer receives from
a product or service.
➢ Economic Utility directly influences demand &
price.
Total Utility (TU)
➢ It measures the aggregate (total) satisfaction
gained from consuming a set quantity of a
commodity.
Marginal Utility (MU)
➢ It is the change in total utility from consuming one
more unit of that commodity.
➢ It measures the additional satisfaction received
from the consumption of one more unit of that
commodity.
➢ It decreases as more units of a commodity are
consumed. This is known as "Law of Diminishing
Marginal Utility".
This means that the price a consumer is willing to
pay for a good decreases as consumption
increases.
➢ Consuming a product faster can lead to a decline in
Marginal Utility.
➢ Marginal Utility can be Zero.
Which of the following concepts is true?
A) The ability to satisfy the human wants in a good or
service is called its satisfaction.
B) The ability to satisfy the human wants in a good or
service is called its productivity.
C) The ability to satisfy the human wants in a good or
service is called its profitability.
D) The ability to satisfy the human wants in a good or
service is called its utility.
NOTE :
Productivity refers to how much output can be
produced with a given set of inputs.
Productivity increases when more output is produced
with the same amount of inputs or when the same
amount of output is produced with less inputs.
When Marginal Utility is Zero, _________
A) Minimum
B) Rising
C) Falling
D) Maximum
Which of the following is true about the relationship
between total utility and Marginal Utility?
A) The Total Utility of a product or service is maximum
when the Marginal Utility is negative.
B) The Total Utility of a product or service decreases
when the Marginal Utility is negative.
C) The Total Utility of a product or service increases at
a decreasing rate when the Marginal Utility is negative.
D) None of the above
NOTE :
When Marginal Utility is Zero, Total Utility is at its
maximum.
When Marginal Utility is negative, Total Utility
decreases.
Which of the following about the relationship between
marginal utility and price is correct?
A) The Marginal Utility of a commodity or service must
be equal to its Price to ensure maximum satisfaction of
the consumer.
B) The Marginal Utility of a commodity or service must
be greater than its Price to ensure maximum
satisfaction of the consumer.
C) The Marginal Utility of a commodity or service must
be lesser than its Price to ensure maximum satisfaction
of the consumer.
D) There is no relationship between the Marginal Utility
of a commodity or service and its Price.
NOTE :
A consumer is most satisfied when the Marginal Utility
(MU) of a commodity equals its Price (P).
MU = P