Describes how consumers make decisions on what to buy
Consumer Behavior Theory
Refers to the use of goods and services to satisfy human want directly
Consumption
Explains consumer behavior in relation to the satisfaction that a consumer gets when he/she consumes good
The Cardinal Approach (Utility Theory)
The term used for “satisfaction”
Utility
One unit of satisfaction
Util
This means the utility is a function of consumption
U = f(C)
Refers to the combined utility derived from consuming certain units of a good
Total Utility
Refers to the additional utility derived from consuming an additional unit of the good
Marginal Utility
States that as additional units of a good are consumed, the additional utility derived from each additional unit tend to diminish
The Law of Diminishing Marginal Utility
Various units of goods are _____
Homogenous
There is no time gap between ______ of the different units
Consumption
Taste, preferences and fashion remain ____
Unchanged
Utilities of different commodities are _____ of each other
Independent
-The demand and supply of products react to changes in their determinnants
-This degree of response to a change determinant is called elasticity
Elasticities of Demand and Supply
Positive sign means
-Normal goods
-Goods are Substitutes
Negative sign means
-Inferior goods
-Goods are complementary
Goods are independent
Zero or Near-Zero Value
This calculates how the suppliers respond to the change in price of the products in the market
Price Elasticity of Supply
This products that are easy to produce
Steep curve of supply
Firms can increase their output level without an increase in cost or delay in time frame
Elastic Supply
Products that need a long time to produce
Flat curve of supply
Producers have difficulty in changing their output level in a given time frame
Inelastic Supply
