2020

Comparative Statics of Consumer Behavior

Introduction The theory of consumer behavior and demand is grounded on the assumption that consumers try to allot limited money income among available goods and services to maximize satisfaction. The consumer purchases to maximize satisfaction subject to the constraint that these purchases do not exceed the consumer’s limited money income. Thus, for the theory of […]

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Consumer’s Equilibrium with Indifference Curve Approach

Introduction A consumer attains his/her equilibrium when he/she maximizes his/her total utility, given his/her income and the prices of the two commodities. We combine the indifference curves and the budget line on the same diagram to illustrate the consumer’s equilibrium graphically. The indifference curve in the utility analysis assumes that the consumer tries to maximize

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The Consumption Decision

Learning Objective To explain the technique and solution of the consumption decision problem Once the consumer identifies his or her preference concerning several consumption bundles represented by the indifference map and which bundles can or cannot be afforded represented by the budget line, the decision problem is now related to the consumption decision. The straightforward

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Cardinal Utility Versus Ordinal Utility

Learning Objective To explain the similarities and differences between cardinal and ordinal utility analysis (cardinal utility versus ordinal utility)   Ordinal utility analysis is considered the improved form of cardinal utility analysis and is also considered a superior method to study consumer’s behavior. Indifference curve analysis is more objective, more scientific, and more applicable because

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Application and Uses of Indifference Curve

Besides the analysis of consumer behavior and consumer demand, the technique of the indifference curve can be used in the analysis of several other economic phenomena and issues. Mainly the technique of indifference curves is applied in the areas like consumer’s surplus, the individual labor supply curve, numerous doctrines of welfare economics, the burden of

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Decomposition of Price Effect into Substitution and Income Effects

Different factors directly affect the consumer’s equilibrium condition, including changes in the price of one good, the price of other goods, and money income. It means a change in the price of the goods; the price of other goods and the money income of the consumer brings a change in the consumer’s equilibrium from one

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