The Theory of Consumer Behavior : dntjnv@yahoo.co.in The Theory of Consumer Behavior The principle assumption upon which the theory of consumer behavior and demand is built is: a consumer attempts to allocate his/her limited money income among available goods and services so as to maximize his/her utility (satisfaction).
Theories of Consumer Choice : dntjnv@yahoo.co.in Theories of Consumer Choice The Cardinal Theory
Utility is measurable in a cardinal sense
The Ordinal Theory
Utility is measurable in an ordinal sense
The Cardinal Approach : dntjnv@yahoo.co.in The Cardinal Approach Nineteenth century economists, such as Jevons, Menger and Walras, assumed that utility was measurable in a cardinal sense, which means that the difference between two measurement is itself numerically significant.
UX = f (X), UY = f (Y), …..
Utility is maximized when:
MUX / MUY = PX / PY
The Ordinal Approach : dntjnv@yahoo.co.in The Ordinal Approach Economists following the lead of Hicks, Slutsky and Pareto believe that utility is measurable in an ordinal sense--the utility derived from consuming a good, such as X, is a function of the quantities of X and Y consumed by a consumer.
U = f ( X, Y )