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Module 3- Consumer Behavior Analysis
Learning Outcomes
By the end of this lesson, students will be able to:
1. Define and differentiate between total and marginal utility.
2. Explain the concept of diminishing marginal utility.
3. Apply the utility-maximizing rule to consumer decision-making.
4. Interpret and graph a consumer’s budget line and understand how changes affect choices
5. Analyze consumer preferences using indifference curves.
6. Determine the consumer equilibrium point using the indifference curve and budget
constraint approach.
7. Apply consumer behavior theories to real-world consumption decisions.
Comprehensive Discussion
1. Introduction to Consumer Behavior Analysis
Consumer behavior analysis studies how individuals make decisions to allocate limited
resources (income) among various goods and services to maximize their satisfaction (utility).
It serves as the foundation for understanding demand in microeconomics.
2. Utility and Its Types
a. Utility
Utility refers to the satisfaction or pleasure a consumer derives from consuming a good or
service.
b. Total Utility (TU)
Total utility is the total satisfaction received from consuming a certain quantity of a good.
c. Marginal Utility (MU)
Marginal utility is the additional satisfaction gained from consuming one more unit of a good.
Law of Diminishing Marginal Utility:
As more units of a good are consumed, the additional satisfaction (marginal
utility) from each additional unit tends to decrease.
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Tabular Presentation of TU and MU
Units of Good Consumed Total Utility (TU) Marginal Utility (MU)
0 0 -
1 20 20
2 38 18
3 54 16
4 66 12
5 74 8
6 78 4
7 78 0
8 76 -2
Interpretation: As consumption increases, Total Utility increases at a decreasing
rate, and Marginal Utility declines — sometimes even becomes negative,
illustrating the Law of Diminishing Marginal Utility.
Diagram 1: Total Utility vs Units Consumed
Y-Axis: Total Utility (TU)
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|●___________________________________________ X-Axis: Units of Good Consumed
0 1 2 3 4 5 6 7 8
Explanation: Total Utility increases as consumption rises but slows down,
reaching a maximum point, after which it may decline.
Diagram 2: Marginal Utility vs Units Consumed
Y-Axis: Marginal Utility (MU)
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|___________________________________________ X-Axis: Units of Good Consumed
0 1 2 3 4 5 6 7 8
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Explanation: Marginal Utility decreases with each additional unit consumed,
reflecting the Law of Diminishing Marginal Utility.
Summary Table
Concept Definition
Satisfaction or pleasure gained from consuming a
Utility
good/service.
Cumulative satisfaction from consuming a certain quantity
Total Utility (TU)
of goods.
Extra satisfaction from consuming one more unit of a
Marginal Utility (MU)
good.
Law of Diminishing Marginal
MU declines as consumption of a good increases.
Utility
3. The Utility-Maximizing Rule
Consumers aim to allocate their income so that the last peso spent on each good
provides the same level of marginal utility. This is the utility-maximizing condition:
This ensures that the consumer is getting the most satisfaction possible for
every peso spent.
Example Problem
Scenario:
Anna has ₱40 to spend on apples (A) and bananas (B).
Price of 1 apple = ₱10
Price of 1 banana = ₱5
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Her marginal utility (MU) for each unit is as follows:
Quantity MU of Apples (A) MU of Bananas (B)
1 40 30
2 32 25
3 24 20
4 16 15
5 8 10
Step-by-Step Solution:
Step 1: Compute Marginal Utility per Peso (MU/P)
Quantity MU A MU A / ₱10 MU B MU B / ₱5
1 40 4.0 30 6.0
2 32 3.2 25 5.0
3 24 2.4 20 4.0
4 16 1.6 15 3.0
5 8 0.8 10 2.0
Step 2: Allocate the ₱40 Based on Highest MU per Peso
Start by selecting the good with the highest MU per peso.
Step Chosen Good MU/P Total Cost So Far
1 Banana 1 6.0 ₱5
2 Banana 2 5.0 ₱10
3 Apple 1 4.0 ₱20
4 Banana 3 4.0 ₱25
5 Apple 2 3.2 ₱35
6 Banana 4 3.0 ₱40 ✅
Total Quantity Chosen:
Apples: 2 units (₱20)
Bananas: 4 units (₱20)
Result: Optimal Allocation
➡ The marginal utility per peso is almost equal, satisfying the utility-maximizing rule.
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Answer Summary:
Anna should buy 2 apples and 4 bananas to maximize her utility from ₱40, ensuring
that the last peso spent on each good provides nearly equal marginal utility.
Example Problem 2
Scenario:
Leo has ₱30 to spend on two goods: Pizza (P) and Burger (B).
Price of 1 slice of pizza = ₱6
Price of 1 burger = ₱3
The marginal utility (MU) Leo derives from each unit is given below:
Quantity MU of Pizza (P) MU of Burger (B)
1 36 27
2 30 24
3 24 21
4 18 18
5 12 15
6 6 12
Step-by-Step Solution
Step 1: Compute Marginal Utility per Peso (MU/P)
Qty MU Pizza MUₚ/₱6 MU Burger MUb/₱3
1 36 6.0 27 9.0
2 30 5.0 24 8.0
3 24 4.0 21 7.0
4 18 3.0 18 6.0
5 12 2.0 15 5.0
6 6 1.0 12 4.0
Step 2: Choose the highest MU per peso until you reach ₱30
Step Chosen Good MU/P Cost Total Cost
1 Burger 1 9.0 ₱3 ₱3
2 Burger 2 8.0 ₱3 ₱6
3 Burger 3 7.0 ₱3 ₱9
4 Pizza 1 6.0 ₱6 ₱15
5 Burger 4 6.0 ₱3 ₱18
6 Pizza 2 5.0 ₱6 ₱24
7 Burger 5 5.0 ₱3 ₱27
8 Burger 6 4.0 ₱3 ₱30 ✅
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Result: Optimal Allocation
Leo should purchase:
2 slices of pizza (₱6 × 2 = ₱12)
6 burgers (₱3 × 6 = ₱18)
➡ Both give equal marginal utility per peso, satisfying the utility-maximizing
condition.
Answer Summary:
Leo will maximize his satisfaction by buying 2 slices of pizza and 6 burgers with his ₱30
budget.
4. Budget Line
a. Definition
A budget line shows all possible combinations of two goods that a consumer can purchase
given their income and the prices of the goods.
b. Formula
c. Budget Line Properties:
Slope: −Px/Py shows the rate at which a consumer must give up one good to get
another.
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Shifts:
Income increase: shifts the budget line outward (right).
Price change: pivots the budget line.
Tabular Representation Example
Assumptions:
Income (I) = ₱60
Price of Good X (e.g., Soda) = ₱10
Price of Good Y (e.g., Sandwich) = ₱5
10Qx+5Qy=60
Quantity of Good X (Soda) Quantity of Good Y (Sandwich) Total Cost
0 12 ₱60
1 10 ₱60
2 8 ₱60
3 6 ₱60
4 4 ₱60
5 2 ₱60
6 0 ₱60
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Shifts in the Budget Line
Scenario Effect on Budget Line
Increase in income Shifts outward (parallel to original)
Decrease in income Shifts inward
Price of Good X increases Line pivots inward from X-axis
Price of Good Y decreases Line pivots outward from Y-axis
Summary Table
Term Description
Budget Line Graph showing all affordable combinations of two goods.
Slope −Px/Py; rate of substitution between goods.
Shifts Income affects position; price changes affect slope or pivot point.
5. Indifference Curves
a. Definition
An indifference curve represents all combinations of two goods that provide the consumer
with the same level of satisfaction.
b. Properties:
Downward sloping (trade-offs between goods).
Convex to the origin (reflecting diminishing marginal rate of substitution).
Higher curves represent higher satisfaction.
Indifference curves never intersect.
Marginal Rate of Substitution (MRS): The rate at which a consumer is
willing to give up one good to gain more of another, maintaining the same
utility.
Tabular Presentation Example
Assume a consumer has preferences for:
Good X = Soda
Good Y = Sandwich
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Combination Quantity of Soda (X) Quantity of Sandwich (Y) Utility Level (U)
A 1 12 100
B 2 8 100
C 3 6 100
D 4 4.5 100
E 5 3.6 100
F 6 3 100
Interpretation:
The consumer gets equal satisfaction (utility = 100) from all combinations A to F.
This trade-off pattern illustrates the Marginal Rate of Substitution (MRS) — how
many units of Sandwich (Y) are given up to gain an additional unit of Soda (X),
keeping satisfaction constant.
b. Key Properties of Indifference Curves
Property Description
To maintain the same utility, gaining more of one good means
Downward Sloping
losing some of the other.
Convex to the Origin Reflects diminishing marginal rate of substitution.
Do Not Intersect Each curve represents a unique level of utility.
Higher Curve = Higher Curves farther from the origin show more preferred
Satisfaction combinations.
The slope of the curve at any point = rate of trade-off
MRS
between goods.
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Marginal Rate of Substitution (MRS)
It measures how many units of Y the consumer is willing to give up for one more unit of X
without changing the level of satisfaction.
6. Consumer Equilibrium
Consumer equilibrium is the point where the consumer maximizes their utility given their
income and the prices of goods.
Graphically, it is the point where the budget line is tangent to an
indifference curve.
a. Mathematically:
At this point:
The consumer is getting equal marginal utility per peso spent on both goods.
The budget is fully spent.
No other combination of goods within the budget yields greater utility.
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Real-World Applications
1. Marketing: Understanding utility helps firms price and position their products.
2. Public Policy: Helps in analyzing subsidies and taxes on consumption.
3. Consumer Choice Prediction: Businesses use these models to forecast buying patterns.
Summary Table
Concept Description Key Formula / Principle
Total satisfaction from
Total Utility (TU) TU increases with consumption
consumption
Marginal Utility Extra utility from one more
MU=ΔTU/ΔQMU
(MU) unit
Utility-Maximizing Equalize marginal utility per
MUx/Px=MUy/Py
Rule peso
Budget Line Shows income constraints PxX+PyY=I
Equal satisfaction
Indifference Curve MRS = slope = MUx/MUyMU_x/MU_y
combinations
Consumer Budget line is tangent to indifference
Max utility point
Equilibrium curve
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Learning Activities
COMPUTATION-BASED PROBLEMS
Instructions: Show your complete solution.
Problem 1: Total and Marginal Utility Table
Complete the following:
Units Consumed Total Utility Marginal Utility
0 0 -
1 30 ?
2 58 ?
3 81 ?
4 99 ?
5 110 ?
Problem 2: Utility-Maximizing Rule
Kyla has ₱24. Price of Good X = ₱4; Good Y = ₱2. MU values are:
Quantity MU of X MU of Y
1 24 20
2 20 16
3 16 12
4 12 8
5 8 4
Compute MU/P and allocate ₱24.
Problem 3: Budget Line
Given:
Income = ₱60
Px = ₱10 (Soda), Py = ₱5 (Sandwich)
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Construct the budget line table showing combinations of X and Y.
Qx (Soda) Qy (Sandwich) Total Cost
0 12 ₱60
1 10 ₱60
2 8 ₱60
3 6 ₱60
4 4 ₱60
5 2 ₱60
6 0 ₱60
Problem 4: Indifference Curve
Use the table below to answer the questions.
Combination Soda (X) Sandwich (Y) Utility
A 1 12 100
B 2 8 100
C 3 6 100
D 4 4.5 100
E 5 3.6 100
F 6 3 100
a. Plot the indifference curve.
b. Identify MRS between points A and B.
c. Interpret the trade-off pattern.
d. What does the shape of the curve suggest about preferences?
Problem 5: Consumer Equilibrium
Jane has ₱100 to spend on coffee (₱10 per cup) and donuts (₱5 each). Her marginal utility
from each good is shown below.
Quantity MU Coffee MU Donuts
1 30 20
2 25 18
3 20 15
4 15 12
5 10 10
6 5 8
Tasks
a. Compute MU/P for each good
b. Determine how many coffees and donuts she should buy to reach equilibrium
c. Explain in 3–5 sentences what consumer equilibrium means in her case
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Real-World Case Study
Case Study 1: The Budget Shopping Challenge – Utility Maximization
Scenario:
Joey has ₱500 to spend on groceries. He enjoys rice (₱50 per kilo) and chicken (₱100 per
kilo). His utility per kilo of rice and chicken decreases as he consumes more. He notices that
he feels more satisfied spending more on rice at first but that satisfaction slows down after 3
kilos.
Task for Students:
1. Using MU per peso concept, help Joey decide how many kilos of each to buy.
2. Identify if his final combination satisfies the utility-maximizing rule.
3. Explain how the law of diminishing marginal utility influences Joey's grocery decision.
Suggested Answer Highlights:
Compute MU/P for each kg to allocate ₱500
Match the last peso of each good so MU/P is equal
The law explains why Joey doesn't keep buying only one product despite initial high
satisfaction
Case Study Grading Rubric: Utility and Its Types
Needs
Excellent (5 Satisfactory (3
Criteria Good (4 pts) Improvement
pts) pts)
(1–2 pts)
Demonstrates
deep and
Shows a good Basic Misunderstands
Understanding accurate
understanding understanding; key concepts or
of Economic understanding of
with only minor some confusion definitions; lacks
Concepts utility, TU, MU,
misconceptions. evident. clarity.
and diminishing
marginal utility.
Insightfully
Application is Application is
applies utility
Applies concepts somewhat incorrect or
Application to principles to the
appropriately with correct; unclear;
Real-World scenario;
reasonable recommendations recommendations
Scenario recommendations
recommendations. lack depth or are off-topic or
are well-justified
alignment. poorly developed.
and logical.
Effectively uses
numerical data,
Use of Mostly accurate Some use of data Minimal or
calculations (e.g.,
Supporting use of data; some or logic, but lacks incorrect use of
MU/P), and
Data or logical reasoning thoroughness or data; analysis
logical reasoning
Reasoning provided. accuracy. lacks support.
to support
analysis.
Organization Clearly Mostly organized Some structure Lacks structure;
and Structure structured, well- with clear present but may writing is
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Needs
Excellent (5 Satisfactory (3
Criteria Good (4 pts) Improvement
pts) pts)
(1–2 pts)
organized, and progression of be difficult to disorganized or
easy to follow; ideas. follow in parts. confusing.
uses headings or
bullet points
effectively.
Free of
Several Poor
grammar/spelling Few minor
Communication grammar/spelling grammar/spelling;
errors; language issues;
& issues; clarity and lacks
communicates clear and mostly
Professionalism tone could be professionalism or
professionally and professional.
improved. clarity.
concisely.
Case Study 2: “Family Budget Reallocation”
Scenario:
A family has a monthly budget of ₱20,000 to spend on groceries (₱2,000 per unit) and
recreation (₱1,000 per outing).
Recently, grocery prices rose to ₱2,500.
Task:
1. Construct the original budget line.
2. Show how the price increase affects the slope.
3. Suggest an adjustment plan to maintain balance.
4. Reflect on the real-life impact of price inflation on consumption.
Grading Rubric for Case Studies (25 Points)
Excellent (5 Good (4 Fair (3 Needs Improvement
Criteria
pts) pts) pts) (1–2 pts)
Understanding of Clear and
Mostly clear Basic grasp Unclear or incorrect
Budget Line accurate
Correct
Graphical Accuracy Minor errors Acceptable Incorrect/missing
graph/table
Application to Somewhat
Well-connected Limited Not connected
Scenario clear
Analysis of Shifts and Some
Thorough Adequate Lacking depth
Slope insight
Writing, Clarity, and Some
Well-organized Mostly clear Disorganized
Structure errors
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Case Study 3: : “Consumer Choices in a Food Court”
Scenario:
James has a daily food budget and frequently chooses between burgers and fruit bowls. One
day, his dietician presents combinations of burgers (Good X) and fruit bowls (Good Y) that
yield him equal satisfaction (indifference set). His data:
Combo Burgers (X) Fruit Bowls (Y) Utility
A 1 10 120
B 2 7 120
C 3 5 120
D 4 4 120
Task:
1. Draw James’s indifference curve.
2. Calculate and interpret MRS between any two adjacent combinations.
3. Explain why indifference curves are convex based on the data.
4. Describe what would happen to James’s choices if the price of fruit bowls
decreased.
Grading Rubric (25 Points Total)
Excellent (5 Good (4 Fair (3 Needs Improvement
Criteria
pts) pts) pts) (1–2 pts)
Accurate & Minor
Curve Plotting Acceptable Poor or missing
labeled errors
Correct & Minor
MRS Calculation Partial calc Incorrect/missing
explained issues
Conceptual
Clear
Interpretation of Deep insight Vague idea Not explained
basics
Convexity
Effect of Price Change Logical & General Minimal
Misunderstood
Analysis applied idea link
Very clear & Mostly Some
Clarity & Organization Disorganized
neat clear errors
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References
1. Case, K. E., Fair, R. C., & Oster, S. M. (2020). Principles of Economics (13th ed.). Pearson
Education.
2. Frank, R. H., & Bernanke, B. S. (2021). Principles of Economics (7th ed.). McGraw-Hill
Education.
3. Krugman, P., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.
4. Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
5. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2021). Economics: Principles, Problems, and
Policies (22nd ed.). McGraw-Hill Education.
6. Nicholson, W., & Snyder, C. (2021). Microeconomic Theory: Basic Principles and Extensions
(13th ed.). Cengage Learning.
7. Parkin, M. (2021). Economics (13th ed.). Pearson.
8. Samuelson, P. A., & Nordhaus, W. D. (2019). Economics (20th ed.). McGraw-Hill Education.
9. Sloman, J., Garratt, D., & Guest, J. (2022). Economics for Business (8th ed.). Pearson.
✅ Web-Based Sources (if applicable)
1. Khan Academy. (n.d.). Utility maximization and consumer choice. Retrieved from
[Link]
2. Investopedia. (n.d.). Consumer equilibrium. Retrieved from
[Link]
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