Theory of consumer behaviour — Economics STD 12 Humanities & Commerce — Question

 

1.

Meaning

It states that the satisfaction the consumer derives by consuming goods and services can be measured with number.

It states that the satisfaction the consumer derives from the consumption of goods and services by using a ranking system in which a ranking is provided to the satisfaction that is derived from consumption.

2.

Diminising Marginal Utility/ Substitution

Diminishing Marginal Utility (DMU) As the consumer has more units of a commodity, the marginal utility of the commodity falls.

Diminishing MRS: As the consumer has more units of good X, the consumer is willing to give up less and less units of good Y, so as to maintain same level of satisfaction.

3.

Represeation

DMU is shown by MU curve which is falling throughout

 

MRS is the slope of indifference curve. Indifference curve is convex to the origin showing diminishing MRS.

4.

Equilibrium Condition

Consumer's Equilibrium M= P_x... for single commodity $\frac{\text{MU}_\text{x}}{\text{P}_\text{x}}=\frac{\text{MU}_\text{y}}{\text{P}_\text{y}}$ for two commodities. sobject P_x.X + P_y.Y = M.

Consumer's Equilibrium [Slope of Indifference curve) = [Slope of Budget line) $\text{MRS}=\frac{\text{P}_\text{x}}{\text{P}_\text{y}}$and convexity of indifference curve.