The willingness to buy a commodity or a service for which necessary resources are available is known as demand. Both desire and resourcefulness are essential requirements for demand. An individual or a family will have demand for several things like food, house, computer, clothes, medicine, car, education, health care, entertainment, and so on to satisfy …
Meaning of Duality The term duality is habitually used to denote a dissimilarity between two correlated concepts, such as duel characteristics of developing economies. It means duality is related to looking for a particular thing in different two alternative ways. Thus, in consumer theory, duality is the alternative way of looking at the consumer’s utility …
In our situation of good X, good Y, and money income M; if money income and the price of good Y stays the same but the price of good X rises, then the consumer will feel poorer, and if the price of good X falls, then the consumer will feel richer. This observation has led …
Income and Substitution Effects of a Price Change Read More »
Learning Objective To explain the derivation of income consumption and Engel curve for a normal and inferior good This issue deals with the impact of change in income on the quantity demanded of good measured along the x-axis (generally quantity demanded of good X). If we hold all the prices of goods constant and increase …
Introduction In the analysis of consumer’s equilibrium, price and income are an exogenous variable, and change in the values of these variables have a direct effect on the consumer’s equilibrium or the consumer’s optimal choice of the goods. The effect of change in money income on the consumer’s optimal purchase decision is traced by the …
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 …
Introduction A consumer attains his/her equilibrium when he/she maximizes his/her total utility, given his/her income and 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 consumer tries to maximize his or …
Consumer’s Equilibrium with Indifference Curve Approach Read More »
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 …
Background and Concept of Preference Ordering Learning Objective To explain the concept of preference ordering and axioms of preference ordering Every individual consumer or each household has a fairly accurate notion of money income for a reasonable period. It also has some notion (perhaps not well defined) of the goods and services it wants to …
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 …