——— Consumer Behavior and Utility Maximization ———

Agenda

• Assumption of consumer behavior
• Total utility, marginal utility
• Law of diminishing marginal utility
• Utility maximization rule

Consumers are the demanders

• They are the users of goods and services.
  • Their behavior includes:
    • Making choices about products and services.
    • Responding to products when making a purchase.
    • Exhibiting buying behavior.
  • Assumptions made about consumers include:
    • Rationality.
    • Budget and constraints.
    • Preferences.
    • Prices.

• Rationality:
  • Consumers aim to maximize their utility with limited resources.
  • They seek to obtain the best available goods and services.
• Budget Constraints:
  • Income earned is always limited
  • Budget constraints can range from easy to severe.
• Preferences
  • Prioritize the use of multiple goods and services

Utility

Utility refers to satisfaction or happiness and cannot be easily quantified or released.

<aside> 💡 Total utility is the sum of all utilities

</aside>

Law of diminishing marginal utility

• The law of diminishing marginal utility states that as a consumer consumes more units of a good, the marginal utility derived from each additional unit of the good decreases.
• In other words, the more of a good that a consumer has, the less satisfaction they will receive from each additional unit of that good.
• This law is important in understanding consumer behavior and decision-making when it comes to purchasing goods and services.