Theory of Consumer Behavior

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Utility is the want-satisfying capacity of a commodity. It is subjective because different individuals can get different levels of utility from the same commodity. For example, someone who likes choco…

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Total Utility (TU) is the total satisfaction derived from consuming a given amount of a commodity. Marginal Utility (MU) is the change in total utility due to consumption of one additional unit. Formu…

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The Law of Diminishing Marginal Utility states that marginal utility from consuming each additional unit of a commodity declines as its consumption increases, while keeping consumption of other commod…

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An indifference curve is a curve joining all points representing bundles among which the consumer is indifferent (gets equal utility). It slopes downward because when a consumer gets one more unit of …

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MRS is the amount of one good (say mangoes) that a consumer is willing to give up to get an additional unit of another good (say bananas), keeping total utility constant. Formula: MRS = |ΔY/ΔX| where …

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As the quantity of one good (X) increases, the consumer is willing to give up smaller and smaller amounts of the other good (Y) for each additional unit of X. This is because MU of X falls as its quan…

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1. Slopes downward from left to right (negative slope) 2. Higher indifference curves represent higher utility levels 3. Two indifference curves never intersect each other These properties ensure logic…

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Budget constraint: p1x1 + p2x2 ≤ M, where p1, p2 are prices of goods, x1, x2 are quantities, and M is income. Budget set is the collection of all bundles that the consumer can afford with their income…