an introduction to microeconomics

AN INTRODUCTION TOMICROECONOMICS

Dr. Mohammed Migdad

Consumer BehaviorTheories

CHAPTER 4

Chapter 4 content:Chapter fourTalks about consumer behavior theories which include:

Marginal utility theory, Marginal and total utility, Consumer equilibrium, The indifference curve theory, The indifference map, The budget line, And the equilibrium using IC theory.

4.1 Introduction

4.2 Marginal Utility Theory

In this section we will shed some light on:1) The difference between Marginal and Total

utility.2) The balance of consumers using marginal

utility theory.3) Deriving the consumer demand curve.4) Problem facing the marginal utility theory.

4.2.1 The Difference between Marginal and Total Utility

• Total Utility (TU) is the aggregate level of satisfaction or fulfillment that a consumer receives through the consumptions of a specific good or service in a given period of time.

• Marginal Utility (MU), however, is the amount of change in TU which is affected by the increase in consumption of one additional unit.

Marginal Utility =

Change in total utility of a product

Change in consumed quantity of the product

MU = TU  

  Q  

Cases

4.3 Consumer Equilibrium

• First condition

marginal utility of good X

=

marginal utility of good Y

= Marginal utility for money

price of good X price of good Y

Marginal utility for money =MU Y

=MU X

P Y P X

Marginal utility for the dollar =Marginal utility for the productProduct price.

4.3 Consumer Equilibrium

• Second conditionIncome = (Purchased quantity of product X * price of product X) + (quantity of product Y * price of product Y)

I = Qx * Px + Qy * Py

Example

4.4 Utility Theory and the Law of Demand

4.5 Consumer Surplus

Example

4.6 The Indifference Curve Theory

4.6.1 Definition of Indifference Curve

4.6.2 The Indifference Map

4.6.3 Indifference Curve Properties

4.6.4 Multiple Indifference Curves

4.6.5 Budget Line (BL)

4.7 Consumer Equilibrium Using Indifference Curves

4.8 Deriving the Demand Curve