Theory of
Consumer Behavior:
There are two main approaches
to the of consumer behavior of demand. The first approach is the Marginal
Utility or Cardinalist Approach. The second is the Ordinalist Approach. We
discuss these two approaches separately.
Human wants are unlimited and they are of different intensity.
The means at the disposal of a man are not only scarce but they
have alternative uses. As a result of scarcity of recourses, the
consumer cannot satisfy all his wants.
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People buy goods
because they get satisfaction from them. This satisfaction which
the consumer experiences when he consumes a good, when measured
as number of utils is called utility.
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The law of diminishing marginal utility
describes a familiar and fundamental tendency of human behavior. The law of
diminishing marginal utility states that, “as a consumer consumes more and
more units of a specific commodity, the utility from the successive units goes
on diminishing”.
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In the cardinal utility analysis, the principle of equal marginal utility
occupies an important place. We state the assumptions of the law first and then
proceed to explain it.
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Dr. Alfred Marshal was of the view that the
law of demand and so the demand curve can be derived with the help of utility
analysis.
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