Module 2 consumer behaviour
Utility
= The ability of a good or service to satisfy a customer's needs or wants.
want satisfying capacity
The more the need for the product is the greater the utility
is a psychological phenomenon
Features of utility
Utility is subjective: the mental satisfaction of a human being
o Surf boat is only useful for a surfer
Utility is relative: utility of a commodity never remains same varies
o Cooler isn’t useful in the winter
Application of utility
o Utility helps us understand how consumers make buying decisions.
o Utility helps us understand demand and its relation to price.
Approaches to consumer behaviour
Cardinal utility approach
o Assumes that utility can be measured in cardinal numbers (1,2,3,…)
o Marginal utility
the change in total utility due to the consumption of one
additional unit of a commodity.
o Total utility
The total satisfaction derived from consuming the given
amount of commodity X.
The more units of a commodity he consumes, the greater will
be his total utility.
Ordinal utility approach
o Can not be expressed in absolute units.
o Immeasurable.
Law of diminishing marginal utility
The satisfaction level lowers with every extra product
= tells us that we obtain less and less marginal utility from the successive units
of a commodity as we consume more and more of it
Assumptions
o Tastes, preferences, etc of the customer remain constant.
o Income of the consumer also remains constant
o Units of the goods are identical or similar
o The process of consumption is continuous.
o Units of the goods are not very small in size.
Utility
= The ability of a good or service to satisfy a customer's needs or wants.
want satisfying capacity
The more the need for the product is the greater the utility
is a psychological phenomenon
Features of utility
Utility is subjective: the mental satisfaction of a human being
o Surf boat is only useful for a surfer
Utility is relative: utility of a commodity never remains same varies
o Cooler isn’t useful in the winter
Application of utility
o Utility helps us understand how consumers make buying decisions.
o Utility helps us understand demand and its relation to price.
Approaches to consumer behaviour
Cardinal utility approach
o Assumes that utility can be measured in cardinal numbers (1,2,3,…)
o Marginal utility
the change in total utility due to the consumption of one
additional unit of a commodity.
o Total utility
The total satisfaction derived from consuming the given
amount of commodity X.
The more units of a commodity he consumes, the greater will
be his total utility.
Ordinal utility approach
o Can not be expressed in absolute units.
o Immeasurable.
Law of diminishing marginal utility
The satisfaction level lowers with every extra product
= tells us that we obtain less and less marginal utility from the successive units
of a commodity as we consume more and more of it
Assumptions
o Tastes, preferences, etc of the customer remain constant.
o Income of the consumer also remains constant
o Units of the goods are identical or similar
o The process of consumption is continuous.
o Units of the goods are not very small in size.
