# Unit 4: Consumer Behaviour (Utility Analysis)

Unit 4: Consumer Behaviour (Utility Analysis)

Marginal utility means the utility derived by consuming every next unit of same thing.

According to the law of diminishing marginal utility when a person consumes more and more units of a good his total utility increases while the extra utility derived from consuming successive units of the good diminishes.

Law of Equi-marginal Utility or the principle of Equi-marginal utility says that the consumer would maximise his utility if he allocates his expenditure on various goods he consumes such that the utility of the last rupee spent on each good is equal.

Independent curve shows all combinations of two goods which yield the same level of satisfaction to the consumer.

The consumer is indifferent about any two points lying on this curve.

Budget line represents different combinations of two goods X and Y which the consumer can buy by spending all his income.

The indifference curve analysis considers the income effect.

Change in the price of commodity will change the real income position.

Indifference curve also considers the effect of substitution goods.

When the demand price is generally greater than the price actually paid, most consumers under most circumstances receive some surplus of satisfaction.

It is known as consumersurplus.

When the supply price is less than the price actually received, most producers under most circumstances receive some surplus of revenue.

It is known as producer surplus.

Budget line: It represents different combination of two goods which the consumer can buy by spending all his incomes Cardinal measure of utility: Utility is a measurable and quantifiable  Marginal utility: Utility derived from every next unit Price consumption curve  The line connecting such (drawn because of change in price) successive equilibrium points is called PCC or price consumption curve  The indifference curve: The curve at which satisfaction is equal at each point