Theory of Consumer Behaviour

Concept of total and marginal utilities. law of diminishing marginal utility and law of substitution. Concept and importance of consumers surplus.

Notes

Law of Diminishing Marginal Utility

Utility may be defined as the power of commodity or services which satisfies the human wants .It is a psychological feelings when a consumer consumes a commodity she/he gets some benefits in the form of satisfaction which referred as utility.

Concept of Total, Marginal and Average Utility

The concept of utility is central to the economic analysis of behaviour of individual. It is usually defined as the satisfaction that individual gain from consuming products.

Law of Substitutions Or Equi-Marginal Utility

Law of substitution is an important law in economics. It is equally applicable in all parts of economics. This law was propounded by HH Gossen in 1854 AD.

Consumers Surplus

The concept of consumer surplus was introduced by A.J. Dupit in 1844. Later on, Alfred Marshall developed it in his book, "Principle of Economics" published in 1890.The concept of consumer surplus is related to our daily life expenses. The excess of benefits from the consumption of a commodity over the sacrifice made in terms of price paid for the commodity is called consumer's surplus. Assumptions of the law of consumers surplus Expected price should be more than actual price Marginal utility must be greater equal to the price of commodity Utility can be measured in cardinal number Consumer is rational person Constant marginal utility of money