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7/21/2019 Consumer behaviour.ppt
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CONSUMER BEHAVIOUR AND ANALYSIS
UTILITY :EXTENT OF OF SATISFACTION OBTAINED FROM THECONSUMPTION OF GOODS AND SERVICES PREFERRED
BY CONSUMERS
APPROACHES
CARDINALIST APPROACH: Utility can b !a"#$% in "#b&cti' t$!" ($ it i" )#anti*iabl+
ORDINAL APPROACH: Utility cann(t b !a"#$% b#t (nly $an,% inO$%$ (* -$*$nc+
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CARDINAL APPROACH . La/ (* Di!ini"0in1 !a$1inal
Utility
TOTAL UTILITY :T(tal "ati"*acti(n n&(y% *$(! t0c(n"#!-ti(n (* t0 1((%+
MARGINAL UTILITY :Rat (* c0an1 in t(tal #tility -$ #nitc0a$1 in t0 )#antity (* t0 1((%c(n"#!%+
C0an1 in t(tal Utility
2 #nit c0an1 in 3#antity C(n"#!%
LA4 OF DIMINISHING MARGINAL UTILITYMa$1inal Utility (* any 1((% tn%" t( %clin a" / c(n"#! !($
Unit" (* it ('$ a %*init -$i(% (* ti!+ T0 %ia1$a!atic
$-$"ntati(n i" a" *(ll(/"+
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Pint" (*
B$
TUMU
0
1
2
3
4
5
6
7
010
18
24
2830
30
29
-
10
8
6
42
0
-1
Total Util ity
0
10
20
30
40
0 1 2 3 4 5 6 7 8
Total Utility
La/ (* Di!ini"0in1 Ma$1inal Utility
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Utility
Economists use the term #tilityto describe the satisfaction or
enjoment deri!ed from the consum"tion of a #ood or ser!ice$ %f
&e assume that consumers act rationa''( this means the &i''
choose bet&een different #oods and ser!ices so as to ma)imi*e
tota' satisfaction or tota' uti'it$
+onsumers &i'' ta,e into consideration
o& much satisfaction the #et from buin# and then consumin#
an e)tra unit of a #ood or ser!ice
.he "rice that the ha!e to "a to ma,e this "urchase
.he satisfaction deri!ed from consumin# a'ternati!e "roducts
.he "rices of a'ternati!es #oods and ser!ices
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E5-$i!nt 6
+onsumers #o sho""in# &ith /s 2500 in hand each
Ma"#$ (* "ati"*acti(n 7UTILS8It!" A'ailabl P$ic C(n" 1 C(n" 6
randed eans 1000
erba' cosmetics 200
i**as 150
anc atches 500
ambur#ers 100
e&e''er 500
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E3UILIBRIUM CONDITION . LA4 OF E3UI . MARGINAL
UTILITY
oin# b the assum"tion of rationa'it consumer attains eui'ibrium
n' &hen he uses that bund'e of #oods &hich #i!es him the hi#hest'e!e' of satisfaction
u""ose a consumer s"ends his income in "urchasin# 3 #oods
:1( :2( :3 &ith res"ecti!e "rices of 1( 2 ;3 the consumer &i''a''ocate his income bet&een the three #oods in such a &a that the
Mar#ina' uti'it "er /s he s"ends on e!er #ood is eua'ised and his
tota' uti'it is ma)imised$ E# if here are n number of #oods
MU9P2MU9P6MU9P;
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A""#!-ti(n"
.he "rinci"'e of eui-mar#ina' uti'it is based on the fo''o&in# assum"tions?
@aA .he &ants of a consumer remain unchan#ed$
@bA e has a fi)ed income$Mar#ina' uti'it of mone is constant
@cA .he "rices of a'' #oods are #i!en and ,no&n to a consumer$
@dA e is one of the man buers in the sense that he is "o&er'ess to a'ter the
mar,et "rice$
@eA e can s"end his income in sma'' amounts$
@fA e acts rationa'' in the sense that he &ant ma)imum satisfaction
@#A Uti'it is measured cardina''$ .his means that uti'it( or use of a #ood(
can be e)"ressed in terms of units or uti's$ .his uti'it is not on' com"arab'e
but a'so uantifiab'e$
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CRITICISMS OF UTILITY THEORY
ome economists c'aim that uti'it cannot be measured objecti!e'$ .here are a'so
doubts about the assum"tion of $ati(nal b0a'i(#$amon# consumers - "articu'ar' in
&or'd &here consumers cannot e)"ect to ha!e a'' the information a!ai'ab'e on the
"roducts a!ai'ab'e in a mar,et$
T0 i!-($tanc (* c(n"#!$ *%bac,
%n standard "rice theor( the-$*$nc" (* c(n"#!$" are ta,en as fi)ed - et &e
obser!e that consumerBs beha!iour in a mar,et is often inf'uenced b their int$acti(n
/it0 (t0$ c(n"#!$"and this then affects demand$
#ood e)am"'e of this is the beha!iour of consumers &ho attend sho&in#s of a ne&
fi'm to a cinema$ .heir reaction to a fi'm &i'' often determine ho& man other "eo"'e
choose to "a to &atch the same fi'm$ C(n"#!$ *%bac,ma be more si#nificant than
an amount of h"e and ad!ertisin# before a fi'm is re'eased$
nother #ood e)am"'e is the feedbac, of consumers &ho !isit a 'oca' restaurant or
feedbac, from "eo"'e &ho ha!e staed at a "articu'ar ho'ida resort$ .heir e)"eriences
ma e)ert a si#nificant inf'uence on the "references and choices of other consumers$ %t i
'itt'e &onder that man successfu' firms trace some of their success at their &i''in#nessand abi'it to res"ond "ro-acti!e' to consumer feedbac,$
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D$i'ati(n (* t0 %!an% c#$'
Eiu'ibrium condition of the consumer is #i!en as
MU >MUm1
%f 1 fa''s it automatica'' im"'ies that MU shou'd fa'' for eui'ibrium
to be restored
urthermore it is e!ident that MU can decrease on' if Cuantit
demanded increases
.herefore &hen "rice of #ood fa''s consumer &i'' bu more of the #ood
.o euate mar#ina' uti'it to 'o&er "rice$ ence the in!erse re'ationshi"
et&een "rice ; uantit
mu1
mu2
mu3
q1 q2 q3
p1p2
p3
q1 q2 q3
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ILLUSTRATION
28 ASSUME THAT UTILITYCAN BE MEASURED IN RS+ FROM THE UTILITY SCHEDULEGIVEN BELO4+FINO HO4 MANY CO=ES THE CONSUMER 4OULD CONSUME AT THE
PRICE OF RS+ > PER CO=E+
E3UILIBRIUM IS REACHED AT A LEVEL 4HERE MU P i++ 4HEN ; CO=ES ARE CONSUMED
68 A CONSUMER HAS AN INCOME OF RS+ 2> FOR A 4EE=+ HE 4OULD LI=E TO SPENO ALLTHE RS+ 2> ON THREE GOODS X? Y @ + PRICES OF X? Y @ ARE RS+ ? RS+ ; AND RS+ 2+
THE MARGINAL UTILITY SCHEDULE IS SHO4N BELO4+
COKES TOTAL UTILITY MU
1
2
3 4
5
30
45
54 59
59
0
15
9 5
0
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E3UILIBRIUM IS REACHED 4HEN MU 4HERE THE CONSUMER 6 UNITS OF X?
P
6 UNITS OF Y AND ; UNITS OF 6+
ALLOCATION OF EXPENDITURE
UNITS MARGINAL UTLITIES MuX MuY MuZ
P P! P"
X Y Z X Y Z
1 30 1# # $ $ #
2 25 15 % 5 5 %
3 20 9 5 4 3 5
4 15 $ 4 3 2 4
5 5 4 3 1 1&33 3
'TY X PRICE ( EXPEN)ITUREGOO) * X 2 5 ( 10 4 5 ( 20
GOO) * Y 2 3 ( $ 3 3 ( 9
GOO) * Z 3 1 ( 3 5 1( 5
TOTAL 19 34
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A FAMILY HAS A MONTHLY BUDGET OF RS+ ; FOR CHEESE? FISH AND HEAT PREVAILING
PRICES ARE RS+ 69 =G CHEESE ? RS+ 9=G FISH AND RS+ 9 =G MEAT+
UTILITY SCHEDULE IS SHO4N BELO4
4HAT IS THE MAXIMUM TOTAL UTILITY THAT CAN BE ATTAINED
TU 2 2 2
CONS C+EESE ,IS+ MEAT
1
2 3
4
5
$
%
%0
130 1%0
205
230
250
2$0
#0
1$0 210
250
2#5
315
335
1$0
290 410
510
590
$50
$#0
CONS C+EESE
MU MU- P
,IS+
MU MU - P
MEAT
MU MU - P
1
2
3
4
5
$
%
%0 3& 5
$0 3& 0
40 2& 0
35 1& %5
25 1& 21
20 1& 00
10 0& 5
#0 2& 0
#0 2& 0
50 1& 25
40 1& 00
35 0& #%5
30 0& %5
20 0& 5
1$0 3& 2
130 2& $0
120 2& 40
100 2& 00
#0 1& $0
$0 1& 20
30 0& $
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CONSUMER SURPLUS
C(n"#!$" "#$-l#" i" %*in% a" t0 %i**$nc bt/n /0at a
C(n"#!$ i" /illin1 t( -ay an% /0at / act#ally -ay"+
ILLUSTRATION APPLICATION
P NP
A
O '
p1p2
q1 q2
.1 .2A
E
/
)
)1
p1p0
q1 q0
p
P.u.
u.pu
)
6
C7um.8
u.pu
)6 :;
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RATIONALE BEHIND THE THEORY
=EY 3UESTION
CAN ONE ACTUALLY MEASURE UTILITY CARDINALLY J
DOES MONEY POSSESS CONSTANT MARGINAL UTILITY J
IS IT PRAGMATIC TO ADOPT AN OBKECTIVE VALUATION
OF A SUBKECTIVE CONCEPT J
BIRTH OF THE INDIFFERENCE CURVE ANALYSIS .IT IS
MORE REALISTIC TO RAN= YOUR PREFERENCE
THAN MEASURE YOUR SATISFACTION
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DEFINITION .INDIFFERENCE CURVE IS THE LOCUS OFPOINTS OF PARTICULAR COMBINATION OR BUNDLES OF
GOODS 4HICH YIELD THE SAME SATISFACTION TO THE
CONSUMAR SO THAT HE IS INDIFFERENT AS TO THE
PARTICULAR COMBINATION HE CONSUMES+
ASSUMPTIONSRATIONALITYORDINALITY
DIMINISHING MRSCONSISTENCY @ TRANSITIVITY OF CHOICE?
A B? THEN B 9A? IF AB? an% BC
T0n AC
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A DISCUSSION ON THE CONCEPT SLOPE
SLOPE OF THE IC CURVE . MARGINAL RATE OFSUBSTITUTION BET4EEN X @ Y
MRS5y . AMOUNT OF A CONSUMER IS 4ILLING TO
GIVE UP FOR AN ADDITIONAL UNIT OFX
MU5 9 MUy
MATHEMATICALLY IT IS THE SLOPE OF A TANGENT AT
ANY POINT ON THE IC dy / dx (neg ative)
SLOPE OF THE BUDGET LINE . PRICE RATIO OF THE
T4O COMMODITIES X @ Y P5 9 Py
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IC1
2
MRS>1
4 $ # 10
2
4
$
#
10M/)
2
1
0$5
d
d)
,
DE .E %+ +U/E . >M/) at @Mu)
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2 4 $ 10
2
#
4
$
#
10
G
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I
I
G
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INDIFFERENCE MAP
IC1
IC2
IC3
i#her %ndifference cur!es #i!e more satisfaction
s more of both #oods : and G are consumed
'
'!
!
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IC1
IC2
IC3
P
P!
'
!
E
CONSUMER E3UILIBRIUM
t "oint E the s'o"e of the indifference cur!e is tan#entia' to the
'o"e of the bud#et 'ine> M/) > )
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A
/
C
IC1
IC2
MRS(1
121
34
5
1 2 3 4 5 1 2 3 4 5 $1
2
3
45
$MRS?1
A
/
P
R
O C ) '
'!
P$(-$ti" (* in%i**$nc c#$'"
2+ Di!ini"0in1 MRS
+ T/( IC
C#$'" %( n(tnt$t"ct
;+ IC c#$' i" %(/n/a$
"l(-in1
10
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C)
C
J
K
C)
C
J
C)
C
2 4 6 8 10
2
4
6
8
10
U.%.U.E +MDEMEF.
Only Y i" c(n"#!% Eit0$ X ($ Y i"
c(n"#!%
S(! 5c-ti(n"
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J
C)
C
o
Only X i" c(n"#!%
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INCOME EFFECT
IC1
IC2IC3
1
2ICC
A
/
A1
/1
A2
/2
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IC1
IC2
IC3
A
/ 1 /1 /2
P
P.: @@=
)
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IC1
IC2
1
2
1 2
A
//1
C
)
'
PRICE EFFECT INCOME EFFECT SUBSTITUTION EFFECT
P.: @@= 2B ( IE 12B SE 1B
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D!an% *($ 327n8 $i"" $i"" $i""
D!an% *($ 367 I8 *all" *all" *all"
D!an% *($ 3;7G8 $i"" *all" *all"
SE IE PE
Gi**n 1((% N1ati' inc(! **ct (#t/i10" -("iti'
S#b"tit#ti(n **ct
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IC1
IC3
1
2
1 2
A
//1
C
)
'
PRICE EFFECT INCOME EFFECT SUBSTITUTION EFFECT
P.: @@= 2B ( IE 12B SE 1B
IC2
SLUTS=YS MEASURE
Y
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IC1
IC2
IC3
A
/ 1 /1 /2
P
)
D$i'ati(n (* t0 %!an%
c#$'
1
23
)
)
P.:
'u67=:=!
p1
p2
p3
o
OA9OBY9Y9-5-5
Y
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Mathematica' Jeri!ation of the s'o"e of %+ cur!e
U>f@)A>,
.ota' differentia' of uti'it function is
dU> U-!dH U-d)
> @MuAd H@Mu)Ad)
.ota' chan#e in U is caused b chan#es in ;) a""ro)imate'
Eua' to chan#e in L Mu H chan#e in )L Mu)
'on# an %+ cur!e tota' differentia'>0
dU>@MuAd H@Mu)Ad)>0
/earran#in# &e #et
-dMU) M/ )( /
-d)MU M/ () /
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Sl(- (* b#%1t lin
Y -5)5 -y+)y 7inc(! c(n"t$aint8
S(l'in1 *($ )y / 1t t0 )#ati(n (* b#%1t lin a"
Py)y -5 )5 Y
)yP59Py+)5Y9-y
Sl(- (* t0i" lin qy/ qxP59Py
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C(n"#!$ 0a" a !(nt0ly b#%1t (* R" 2+ T0 -$ic" (* X @Y 1((
H c(n"#!" i" R" 2 9=1 (* X an% 29lt$ (* Y+ Hi" #tility *#ncti(n i"
Hi" #tility *#ncti(n i" U7XYXY8+ Fin% t0 (-ti!#! "-n%in1 (n
1((% X@Y+
MU59MUyP59Py
MU5 U/ xY2
MUy U/ y(X2
P52
Py2
C(n"#!$ !a5i!i"" 0i" #tility by )#atin1
MU59MUyP59PyY29X2292
2Y22X 2
2X2Y
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Gi'n b#%1t (* 2
P5+)5Py+)y2
252y2
2y2y2
;y>>
Y>>9;
;;+2X+6
O-ti!#! "-n%in1 (n 1((%
X +62 6+
Y;;+22>+
D!an% *#ncti(n *($ -$(%#ct Y
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D!an% *#ncti(n *($ -$(%#ct Y
4 " t0at at )#ilib$i#!
7Y2897X28 29-y
25 2 Py7Y28
X Py7Y282
2
Gi'n t0 b#%1t c(n"t$aint (* R" 2
P5+XPy+Y 2
Py7Y282 Py+Y 2
2
Py7Y282 Py+Y 2
Py+y PYPY22
2+
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6Py+Y Py 22
Py76y28 22
Py 2296Y2 D!an% *#ncti(n
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S#--l!nta$y
inc(!
;
6
!
X2 X; X6
A
B BD
C
O
L
=
C("t (*
"#b"i%y
X
*((%
YInc(!
I2
I6
GOVERNMENT POLICIES
C iti
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C$iti)#
+an a consumer order his "references as "recise' and rationa''
s the theor im"'ies
+an the effect of ad!ertisin#( of "ast beha!iour@habitA(of
%nterde"endence of consumer "references be i#nored
Joes this theor estab'ish the sha"e of an %+ cur!e or is it just
assumed
CONCLUSION
h do &e stud consumer beha!iour inde"th
ns&er 'ies in the fact that mar,et demand is a summation
f indi!idua' demand hence the e)amination of the beha!iour of
the consumer &hich in turn deri!es the indi!idua' demand cur!e
i f b i ' < ' d i