1. CONSUMERS’ BEHAVIOUR AND DEMAND

2. CONSUMER
A consumer is one who buys goods and services for satisfaction of wants.

3. UTILITY
In economics, utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services.

4. RELATION BETWEEN TU AND MU
UNITS TU MU 1 10 2 18 8 3 24 6 4 28 5 30 7 -2
When MU is +ve, TU increases.
When MU is 0, TU is maximum.
When MU is –ve, TU decreases.

5. LAW OF DIMINISHING MU
As more and more standard units of a commodity are continuously consumed, MU derived from every additional unit must decline.
Also known as Fundamental Law of Satisfaction or Fundamental Psychological Law.

6. ASSUMPTIONS OF LAW OF DMU
Standard unit of commodity is used.
Homogenous commodity.
Continuous consumption.
Mental and social condition of the consumer
must be normal.

7. EXAMPLE TO PROVE LAW OF DMU
UNITS MU 1 10 2 8 3 6 4 5 7 -2

8. CONSUMER EQUILIBRIUM

10. ASSUMPTIONS OF CARDINAL APPROACH
Consumer’s income is given.
Market prices of commodity are given.
Utility can be cardinally measured.
Constant MU of money.
Consumer is rational.
Mental and social condition of the consumer must be normal.

11. CONDITION OF CARDINAL APPROACH (Single Commodity)
Utility gained (UG) = Utility sacrificed (US) Or
MUX = MUM or PX
Where MUX = MU of X commodity
MUM = MU of money
PX = Price of X commodity

12. EXAMPLE OF CARDINAL APPROACH
COMMODITY UNITS
MUX
PRICE (MUM) 1 50 10 2 30 3 20 4 5 6
-10

13. POINT OF SATIETY
UNITS
MUX
Mum (PX) 1 10 2 8 3 6 4 5 7 -2
It is the situation in which the consumer does not pay any price for the commodity
It exists when
Mum(0) = MUX

14. CONDITION OF CARDINAL APPROACH (Two Commodities)
MUX = MUY
PX PY
Where MUX = MU of X commodity
MUY = MU of Y commodity
PX = Price of X commodity
PY = Price of Y commodity
This is however, subject to the budget constraint
that the money spent just equals the income.
PXQX + PYQY = M

15. INDIFFERENCE CURVE (IC)
It represents those combinations of 2 commodities that give the same satisfaction to the consumer.

16. MARGINAL RATE OF SUBSTITUTION (MRS)
MRS of X commodity for Y commodity is defined as the no. of units of Y commodity that must be sacrificed in exchange for an extra unit of X commodity so that the consumer maintains the same level of satisfaction.
Therefore, MRSXY = Loss of Y commodity = ΔY
Loss of X commodity = ΔX

17. ASSUMPTIONS OF IC
Consumer is interested in the purchase of 2 commodities.
The 2 commodities are available in packed bundles.
Each bundle contains different quantities of 2 commodities.
Consumer can rank various bundles in order of importance to him.

18. EXAMPLE OF IC COMBINATIONS GRAPES (100 gms) ORANGES (Units) A 1 20 B 212 C 3 8 D 4 6

19. A set of ICs is known as an IM
INDIFFERENCE MAP (IM)
A set of ICs is known as an IM
COMB.
GRAPES
(100 g)
ORANGES
(Units) G O A 1 20 2 3 B 12 4 C 8 5 D 6

20. EXAMPLE OF IM
Oranges
IC3
IC2
IC1
Grapes

21. FEATURES OF IC It is of convex shape to the origin
It is downward sloping to the right
IC never touches any axis, neither x nor y
Higher the IC, higher level of satisfaction
Two ICs never touch each other or intersect

22. THANK YOU Made by :- Saloni Dhingra Itisha Gupta
In The Guidance of Mr. Premjeet Bhati