Consumer, Producers and Economic Markets

Part 3: Consumers, Producers and Markets

· The household and consumption

· The firm,production and costs

· Market structure and firm behaviour

· Parkin et. al (2010) Chapters 6,8-12

· Microeconomic theory: models from which DD and SS derived

· Theories provide additional insights; and

· Predictions for solving novel problems

6: Consumer Behaviour

Parkin et. al. (2010 Chapter 6)

· Consumer choices about the goods purchase depend upon what the Hh

· CAN do (i.e its consumption possibilities,

· determined by Y and P); and

· WANT to do (i.e preference or tastes)

Consumption Behaviour

Three key assumptions

1. Hh seek to maximize satisfaction (welfare);

2. Satisfaction is gained from consumption; and

3. Hh are price-takers

6.1 The marginal utility theory of consumer behaviour

· A key assumption of MU theory:

· Satisfaction (utility) is measureable,

· In units called ‘utils’.

6.1.1 Measuring Hh satisfaction

· Consider good A.

· As more and more is consumed, total utility (TU) increases.

· TU may reach a maximum (the ‘point of satiety’);

· Thereafter, additional amounts consumed lead to dis-utility.

· Measurability means that a schedule could be constructed.

Utility Schedule: cold drinks

No consumed	Total Utility
0	0
1	10
2	17
3	22
4	22
5	19