CONSUMER BEHAVIOUR
Learning Objectives
o Introduction
o Utility
o Relation Between TU & MU
MD EHTASHAM
17/10/2024
Introduction
• Why, when, how and where should people buy or do not buy
product is the study of consumer behaviour which is the mix of
essential features from psychology, sociology, social
anthropology and economics. The decision-making process of
the buyer is attempted to comprehend, both individually and in
groups. To understand people's wants, characteristics of
individual consumers like demographics and behavioural
variables are studied by consumer behaviour. Groups such as
family, friends, reference groups and society in general which
affect the consumers are also assessed
Utility
• The power to satisfy one’s want or desire is the utility of the commodity. The
literal meaning of the term ‘utility’ is ‘usefulness’ but in economics, it
implies the capacity to satisfy the want of a good. Simply to say, utility is
value-in-use of a commodity.
• Utility is the derivative of consumption which implies subjective satisfaction.
Simply, 'utility' describes consumer preferences according to modern theory
of consumer behaviour. Satisfaction and utility are different to each other as
satisfaction is derived whereas utility is in the thing. Thus, a thing
possessing utility leads to or provides satisfaction. Satisfaction being the
ultimate end, while utility is the channel. Utility analysis provides awareness
in understanding market demand and forms a foundation of modern micro-
economics. Investigation of consumer behaviour, especially market
purchases is the analysis in particular which depends upon the satisfaction
of wants and needs(utility) generating from the consumption of a good.
Measurement of Utility
• The concept of measuring utility in units is utils which helps
in understanding the consumer behaviour. It is used
analytically to distinguish between the following utility
concepts.
1. Intial Utility
After consuming the first unit of a commodity the utility derived
is the initial utility. The satisfaction of the thirst by taking the
first glass of water is the utility gained which is described as
initial utility that is always positive.
2. Total Utility(TU)
• After consuming various units of the commodity, the sum total
of satisfaction that is received by a consumer is the total
utility. The total utility or the satisfaction of a consumer to a
certain point will be greater on the consumption of more units
of a commodity. The point of saturation that represents
maximum total utility is achieved by the consumer as he
keeps on increasing the consumption of the commodity. The
total utility of the consumer starts declining as he further
consumes the units of commodity.
3. Marginal Utility(MU)
• When a single unit is added to the total utility in the rate of
consumption or the stock of goods possessed is defined as
marginal utility which is the net additional unit. Thus, for a
given unit of time, marginal utility is the increment or
decrement in total utility that is proportionately caused by
increment or decrement of one unit in the consumption of a
commodity.
Relation b/w Total Utility & Marginal Utility
• Following table and diagram illustrates the relationship
between total utility and marginal utility.
Quantity Total Marginal
Utility Utility
1 10 10 Initial utility
2 18 18-10= 8
3 24 24-18 = 6
Positive
4 28 28-24 = 4
5 30 30-28 = 2
6 30 30-30 = 0 Zero
7 28 28-30 = -2 Negative
From table
• That the total utility increases as every successive unit is consumed by
the consumer. At the first unit total utility is equal to 10 which is initial
utility and further, it increases to 18, 24, 28, 30 and so on. Here, one must
remember that this increase is at a diminishing rate, but still it is positive
utility. At 6 ^ m unit, total utility inconstant, i.e., 30 units and later on it
start declining at an increasing rate. At 7 ^ (0k) unit, total utility is
recorded as 28units. Therefore, one can say that total utility goes on
increasing as long as the marginal utility of a commodity remains positive.
On the other side, at the first unit of consumption marginal utility is equal to
10 and on successive units it continues to fall till 5th unit of commodity is
consumed. At 6 ^ 10 unit, marginal utility becomes zero, this is the point of
full satisfaction or point of saturation. Here, consumer gets maximum
satisfaction. At 7 ^ m unit, marginal utility is -2 i.e. Negative. This means the
point of over satisfaction.
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