...Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money. “Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time.s CONSUMER BEHAVIOUR • It is the study of how people buy, what they buy, when they buy and why they buy. • It attempts to understand the buyer decision processes/buyer decision making process, both individually and in groups. • It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. • The theory of consumer behavior in managerial economics depends on a) Budget • constrained by income and the price of the goods, • The budget constraint specifies the combination of goods the consumer can afford to buy. b) Preferences • Economists use the concept of utility to describe preferences. • There are some assumptions of consumer behavior theory like :- a) rational behavior b) clear cut preferences • Consumer behaviour can be explained using two main approaches: 1. Marginal Utility Theory (The Cardinalist Approach); and 2. Indifference curve Analysis (The Ordinalist Approach) 1. MARGINAL UTILITY THEORY (THE CARDINALIST APPROACH) • developed by Alfred Marshall who introduced an imaginary unit called the...
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...The cardinalist and ordinalist approach to consumer behaviour discuss? Economics Questions Answers.com > Wiki Answers > Categories > Business & Finance > Economics View Slide Show Best Answer Consumer Behavior from a Cardinalist and Ordinalist Approach Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money.From Wikipedia, the free encyclopedia "Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. "Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time. According to Utilitarian's, such as Jeremy Bentham (1748- 1832) and John Stuart Mill (1806-1873), theory "Society should aim to maximize the total utility of individuals, aiming for "the greatest happiness for the greatest number of people". Another theory forwarded by John Rawls (1921-2002) would have society maximize the utility of those with the lowest utility, raising them up to create a more equitable distribution across society. Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain...
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...price of the goods, • The budget constraint specifies the combination of goods the consumer can afford to buy. b) Preferences • Economists use the concept of utility to describe preferences. • There are some assumptions of consumer behavior theory like :- a) rational behavior b) clear cut preferences • Consumer behaviour can be explained using two main approaches: 1. Marginal Utility Theory (The Cardinalist Approach); and 2. Indifference curve Analysis (The Ordinalist Approach) 1. MARGINAL UTILITY THEORY (THE CARDINALIST APPROACH) • developed by Alfred Marshall who introduced an imaginary unit called the util as a means of measuring utility. • 1 util = 1 unit of money. • Utility is additive. • This approach was termed cardinal since cardinal numbers could be used to measure utility. • Each consumer chooses quantity demanded of all goods and services in order to maximize his/her utility or want satisfying power, given the limits imposed by available income. • The concept of utility is ethically neutral. Total utility • Total utility is the total benefit/satisfaction obtained from all the units of a particular product consumed • Total utility depends on the person's level of consumption - more consumption generally gives more total utility. Marginal Utility • Marginal utility is the additional utility derived from the consumption of one more...
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...Contents Utility before 1920’s 2 Utility measurements 2 CARDINALIST AND ORDINALIST UTILITY APPROACH OF CONSUMER BEHAVIOUR 3 CARDINALIST UTILITY APPROACH 3 Marginal utility 4 Assumptions of Cardinal Utility Analysis: 5 Cardinal Measurement of Utility 5 Rationality 6 Diminishing marginal utility 6 ORDINALIST UTILITY APPROACH 7 Rational behavior of the consumer 8 Ordinal Utility 8 Diminishing marginal rate of substitution 8 Consistency selection 8 Transitivity/Consumer’s preference is not self-contradictory 8 Goods consumed are substitutable 9 ECONOMIES AND DISECONOMIES OF SCALE 16 ECONOMIES OF SCALE 16 Definition: 16 Internal economies of scale 16 External economies of scale 18 DISECONOMIES OF SCALE 20 Internal diseconomies of scale 20 External diseconomies of scale 21 CONCLUSION 22 INTRODUCTION Utility before 1920’s: One reason why utility theory was not of great significance is explained by the “ Paradox Value” by economist/philosopher Adam Smith in 1800’s. Also known as Diamond-Water Paradox, it addressed why absolute necessities such as water are valued (priced) so cheaply, while frivolities like diamonds are highly valued and command outrageous prices. Many economists then thought utility was not the cause of price and therefore concentrated on cost of production as the explanation of price.It was until economist Jevons (1871), established how the paradox value could be resolved by associating price with degree of utility, that is marginal...
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...Consumer Behavior from a Cardinalist and Ordinalist Approach Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money.From Wikipedia, the free encyclopedia “Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. “Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time. According to Utilitarian’s, such as Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873), theory “Society should aim to maximize the total utility of individuals, aiming for "the greatest happiness for the greatest number of people". Another theory forwarded by John Rawls (1921–2002) would have society maximize the utility of those with the lowest utility, raising them up to create a more equitable distribution across society. Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain at given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively. When coupled with production or commodity constraints...
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...branch that tries to relate preferences to both consumer demand curves and consumer expenditures. The theory analyses the way consumers maximize their need to consume which is measured by their preferences against the limited ways on their expenditure. Consumers do this by utility maximization subject to a constraint on their budget. Other times it gets referred to as the theory of consumer behavior. Through the study of this theory, researchers can explain why the consumers would buy more of the product when its price is less as compared to when its price is high. Another elaboration of the theory is that it shows the reason why the households spend their income as they always do (Haugtvedt, Herr, & Kardes, 2008). The greater assumption is that every consumer is rational and aims at maximizing their satisfaction. Some major theories explain the consumer behavior. First is the Cardinalist approach or the marginal utility theory and the second is the ordinalist approach or the analysis of the indifference curves. The former describes extra satisfaction a consumer derives after consuming an extra unit of a commodity while consumption of all other products remains unchanged. The law of diminishing marginal utility gives a thorough elaboration on why the demand curves always have a downward sloping nature. The latter shows the line of combinations (indifference curves) of the quantity of two products say A and B such that the individual is indifferent between all combinations on...
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...Utility means satisfaction which consumers derive from commodities and services by purchasing different units of money.From Wikipedia, the free encyclopedia “Ineconomics, utility is a measure of satisfaction;it refers to the total satisfaction received by a consumer from consuming a good or service. “Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility. Utility is often affected by consumption of various goods and services, possession of wealth and spending of leisure time. According to Utilitarian’s, such as Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873), theory “Society should aim to maximize the total utility of individuals, aiming for "the greatest happiness for the greatest number of people". Another theory forwarded by John Rawls (1921–2002) would have society maximize the utility of those with the lowest utility, raising them up to create a more equitable distribution across society. Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain at given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively. When coupled with production or commodity constraints, under some assumptions, these functions can be used to analyze...
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...Ivan Moscati How cardinal utility entered economic analysis during the Ordinal Revolution 2012/5 UNIVERSITÀ DELL'INSUBRIA FACOLTÀ DI ECONOMIA http://eco.uninsubria.it In questi quaderni vengono pubblicati i lavori dei docenti della Facoltà di Economia dell’Università dell’Insubria. La pubblicazione di contributi di altri studiosi, che abbiano un rapporto didattico o scientifico stabile con la Facoltà, può essere proposta da un professore della Facoltà, dopo che il contributo sia stato discusso pubblicamente. Il nome del proponente è riportato in nota all'articolo. I punti di vista espressi nei quaderni della Facoltà di Economia riflettono unicamente le opinioni degli autori, e non rispecchiano necessariamente quelli della Facoltà di Economia dell'Università dell'Insubria. These Working papers collect the work of the Faculty of Economics of the University of Insubria. The publication of work by other Authors can be proposed by a member of the Faculty, provided that the paper has been presented in public. The name of the proposer is reported in a footnote. The views expressed in the Working papers reflect the opinions of the Authors only, and not necessarily the ones of the Economics Faculty of the University of Insubria. © Copyright Ivan Moscati Printed in Italy in december 2012 Università degli Studi dell'Insubria Via Monte Generoso, 71, 21100 Varese, Italy All rights reserved. No part of this paper may be reproduced in any form without permission of the Author...
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...The Central Problem of Economics Needs and Wants Needs are the things we can’t survive without. They are necessities of life e.g. food, clothing, shelter, water, basic wealth and basic education. Wants are the things we desire to have or own but we can survive without them e.g. cell phones, TVs, oars, radios, entertainment etc. Our want are unlimited and we never seem to be satisfied with what we have. It is people’s wants rather than their needs we provide the motive for economic activity. The economic resources that are available to satisfy our wants are limited. These resources are called factors of production which are : Land (Natural Resources) Land refer to natural resources over which people have power of disposal and of which may be used to yield income/money e.g. farming and building land, forests, mineral deposits, air, seas, oceans, vegetation, fisheries. The reward for land is rent. Labour Labour is human effort – physical or mental which is directed to the product of goods and services. Reward for labour is wages/salary. Capital Is money and all man-made assets used in the production of goods and services e.g. money, machinery, factories, delivery vans etc. Reward for capital is interest. Enterprise Land, labour and capital on their own will not produce anything. There must be a person or people who will organise the 3 factors of production so that production can take place. Whoever takes these decisions and consequent risks is known as the entrepreneur...
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