Comparative analysis of two current consumer behavior theories

1. THEORIES OF CONSUMER BEHAVIOR

2. 
 I.
UTILITY THEORY INDIFFERENCE THEORY
 Vilfredo Pareto
William Stanley Jevons
 Described thru
Analyz in total utility
Consumer’s preference
(TU) and marginal utility
(MU) of “various
“utils “ is the unit of combinations of goods
measure and services” based on
Consumer satisfaction nature NOT on total
can be measured thru TU utility and marginal
and MU utility

3. II. UTILITY THEORY
A. Utility Schedule for Siomai
Total Utility Marginal Utility
Piece/ Unit (TU) MU=ΔTU/ ΔQ
0 0 0
1 14 14
2 25 11
3 33 8
Consumer’s
satisfaction is 4 38 5
5 41 3
measured
using UTILS 6 43 2
7 43 0
8 41 -2
9 38 -3
10 33 -5
11 25 -8
12 14 -11
13 0 -14

4. B. Plot the value on the X and Y axis
Y-Values
50
45
40
35
30
25
Y-Values
20
15
10
5
0
0 5 10 15

5. C. TOTAL UTILITY CURVE
Connect the points. Then, observe
the shape of the graph.
Y-Values
50
45
40
35
30
25
Y-Values
20
15
10
5
0
0 5 10 15

6.  satisfaction derived in
goods decrease as additional
number of the same good is
utilized
MU = Δ TU (TU2- TU1)
Δ Q (Q2- Q1)

7. MARGINAL UTILITY (MU) CURVE
Y-Values
20
15
10
5
0 Y-Values
-5 0 5 10 15
-10
-15
-20

8.  > Modern approach in understanding
consumer behavior
 > Analysis is based on consumer preferences
of various combinations of goods and
services depending on its nature

9. A. INDIFFERENCE SCHEDULE OF FOOD & CLOTHING
FOOD AND CLOTHING
(X) (Y)
350 - 40
230 - 80
150 - 120
90 - 160
60 - 200
40 - 240
30 - 280

10. B. Plot the Indifference Schedule
Y-Values
300
250
200
150
Y-Values
100
50
0
0 100 200 300 400

11. C. Indifference Curve (Single Curve)
Y-Values
300
250
200
150
Y-Values
100
50
0
0 100 200 300 400
Indifference Curve = locus of points wherein each point
represents a combination of goods and services that will
give equal level of satisfaction to a consumer

12. D. Indifference Map
Y-Values
300
250
200
150
Y-Values
100
50
0
0 100 200 300 400

13. E. RULE in reading the IC’s
The farther the IC from the
point of origin OR as we move
upward from the origin going to the
right the higher is the level of
satisfaction.
Thus, farther curves are more
preferred . 

14. F. Important Properties of IC
1) IC slopes downward (negative slope), therefore,
consumer adds 1 unit of food, she/he needs to deduct
1 unit of clothing.
REASON: budget constraint
2) IC is convex to the point of origin, therefore, curve
becomes flatter as it goes down from point A to G.
Hence, slope decreases and it is said to be convex.
3) IC does NOT meet or intersect at any point.
4) IC reflects preferred combinations of goods/
services, therefore, IC moves to the right to show
higher levels of utility.

15. G. MARGINAL RATE OF SUBSTITUTION
MRS = Δ Product (X)
Δ Product (Y)
FOOD CLOTHING MRS
(Y) (X)
350 40 0
230 80 3
150 120 2
90 160 1.5
60 200 .75
40 240 .5
30 280 .25

16. KEY WORDS:
budget constraint = what consumers
can afford to buy based on her/his cash
on hand
preference = what they WANT to
consume is what they buy
Marginal Rate of Substitution
MRS = Δ X2- X1
Δ Y2- Y1