Consumer behavior and its concepts

Consumer behavior and its concepts

In order to understand the economy, it becomes very necessary to understand the concept of consumer behavior, which is the basis for all the transactions as well as the decisions of a company. Determination of such behaviors and the theories behind them is a tough task, hence accounts students generally need help in homework for the same.

A consumer is said to be in equilibrium in a situation when he or she is spending all his or her income that is given to him or her while purchasing different goods in a way so that his or her total utility is maximized. A consumer gets to maximize his total utility by allotting his or her income in such a way that the marginal rupee that is spent on each commodity of last rupee is equal. 

Study help me is one such platform which helps students to learn factors related to consumer behavior assignment and write case studies. Utility is said to be that amount of satisfaction which is consumed by a consumer from a commodity. The following are two types of utility: 

  • Total utility: Total utility is defined as the total satisfaction by a consumer through consuming a specific quantity of a commodity.
  • Marginal utility: The additional utility that is derived by a consumer through consuming additional unit of commodity is called marginal utility.

Now we should look at various characteristics of utility that need to be clearly read and understood in order to get an effective assignment help. These characteristics are as follows:

  • Utility is subjective: Utility has its independence upon the subjective estimate that is drawn by an individual regarding the amount of satisfaction that he or she is going to receive from a commodity.
  • Devoid of ethical connotations: Utility does not have any ethical, moral or legal connotations.
  • Utility is not measurable: Utility cannot be measured in objective terms since it is subjective and also the satisfaction cannot be measured.
  • Utility is relative in nature: Utility is not considered absolute but is relative as it has a subjective nature. 

Law of Diminishing Marginal Utility

Law of diminishing marginal utility tells us that marginal utility falls when the amount of commodity that is consumed by a consumer rise, other things being equal. This law has some assumptions that are as follows: 

  • All the units of a commodity should be alike as in color, quality, size, design, etc.
  • Throughout the process of consumption, the taste should remain unchanged. In the period of consumption, the taste of the consumer must remain same.
  • The unit of a good should be of standard quality. For example, a bottle of cold drink, a full mango, a cup of water, a pair of shoes, etc.
  • While taking consumption decisions, the consumer is rational. 

While you understand the law and the assumptions behind it, to get assignment help, you further should focus on the explanations behind these laws, in order to enhance your work:

  • As a consumer keeps on consuming a commodity, with every additional unit of a commodity intensity of desire of a consumer keeps on falling with every additional unit. Hence, the marginal utility decreases with increase in consumption of a commodity.
  • When a commodity is being offered in a large quantity, it will be put to all possible uses whether important or less important but if commodity is offered in small quantity, it will be required for important use only. If commodity is put to less important uses, marginal utility will be less and if commodity is put to important use, marginal utility will be more.

Now let’s see the following points about Consumer’s equilibrium through Cardinal Utility Approach

  • The consumer is assumed to be rational that is, he or she maximizes the utility through his or her purchases.
    • The preferences and tastes of consumers does not change.
  • The income of the consumer is given that remains constant.
  • Law of diminishing marginal utility comes into operation.
  • The assumption is made that the prices of other commodities are given.

Now let us look at the Law of Equi-Marginal utility

This law tells us that a consumer will be in equilibrium when he or she allocates his or her income in different types of commodities in a way that marginal utility is equal that is spent on the last rupee of each commodity. 

Limitations of Equi-Marginal utility:

  • Since utility cannot be measured so it becomes very difficult for the consumer to know the marginal utilities that is attained through various commodities.
  • As many consumers are ignorant hence, they are not able to arrive at the equilibrium position.
  • In many cases consumers are governed by customs and habits. Therefore, their decisions about the purchase of different commodities are dictated more through these considerations apart from economic considerations.

Indifference curve analysis

It is based on a scale of preference that says that a consumer can prefer any combination of two goods depending upon his need or situation. It also gives an equal amount of satisfaction to the consumers since it shows various combinations of two commodities. It has some assumptions that are as follows:

  • Rationality: It states that the consumer always aims at maximizing its utility.
  • Diminishing marginal Rate of Substitution: It means that as the consumer keeps on sacrificing more and more unit of one commodity for another commodity, his willingness to sacrifice one commodity goes on decreasing.
  • Non-satiety: A consumer should not be over-supplied with goods. If at all he is over-supplied with goods, the indifference curve analysis will become null and void.
  • Ordinal utility: Indifference curve analysis has its basis on assumption that utility can only be compared but not measured.
  • Transitivity of choice: A consumer has a liberty of selecting any combination of commodity from A to B, B to C, or even a to C.

The points explained above regarding consumer behavior, its laws, its explanations, etc. are well described to understand the theory behind the topic. These introduced points can offer help in homework to students willing to extract the same. However, this must always be augmented by the self-analysis done by the students themselves.