Managerial Economics & Environmental Analysis

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University It is the starting point in economic activityIt is the starting point in economic activity Individuals are unique in natureIndividuals are unique in nature Consumer Behaviour

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Characteristics of Human wants Characteristics of Human wants  Wants are unlimited  Wants are competitive  Wants are recurring in nature  Wants are complementary  Wants are alternative  Wants vary with time, place & person  Wants become habit

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Concept of Utility  The want satisfying quality of a good is called as utility  It is a want satisfying power Ex: Non smokers do not have any utility from cigaretteEx: Non smokers do not have any utility from cigarette Vegetarian do not have utility from fish and muttonVegetarian do not have utility from fish and mutton

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Characteristics of Utility  Utility is subjective  Utility has no moral or legal application  Utility is the psychological feeling

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Total and Marginal Utility Total utility:Total utility: It is the total satisfaction derived from consumption of the goods or service. Total utility refers to the sum total of utility levels out of each unit of a commodity consumed within a given period of time. Ex: Consumer purchases a biscuit packet, total utility refers to the total satisfaction he gets in consuming the biscuit packets

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Total utility & Marginal Utility Marginal utility: Marginal utility: It is the satisfaction derived from the consumption of a marginal unit or additional unit. It is the satisfaction derived from the consumption of a marginal unit or additional unit. The term marginal utility can be defined as the rate of change of total utility caused by a change in the quantity of a commodity consumed. Marginal utility may not be constant. When we consume more and more, the extra satisfaction i.e., marginal utility will go on diminishing

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Law of Diminishing Marginal utility As per the law of diminishing marginal utility, marginal utility for successive units consumed goes on decreasing. As per the law of diminishing marginal utility, marginal utility for successive units consumed goes on decreasing. When a consumer consumes more and more units of a commodity during a particular time, the intensity of desire for that thing tens to diminish

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Assumptions of the law  The successive units of commodities should be identical and homogenous  The units consumed should be successive without interval of time.  The unit consumed should be standard unit. Ex: Glass of milk  The tastes, fashions, customs and habits of the consumer should remain unchanged.  The consumer is a rational being in the sense that he will satisfy his wants in the order of the preference. Ex: Limited income

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Criticism of the Law  The utility is the mental phenomenon  The law assumes that a person consumes only one good at a time  In practical life no body consumes the commodity at successive units without interval of time  This approaches assumes the marginal utility of money is constant

Executive Placement 2003 BIM School of Management Studies – Striving towards Excellence Vels University Law of Equi-Marginal utility  Wants are competitive  Choice should be made from more urgent and less urgent goods  Every person wants to make best of his resources.  It is also called as Law of substitution and Law of maximum satisfaction