NCERT Books Class 12 Microeconomics Chapter 2- Theory of Consumer Behaviour

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Table of Contents
Topics covered
Starting of the Chapter
Glimpses of the Chapter
PDF Link
 

Topics Covered in the Chapter Theory of Consumer Behaviour

2.1 UTILITY

• 2.1.1 Cardinal Utility Analysis
• 2.1.2 Ordinal Utility Analysis

2.2 THE CONSUMER’S BUDGET

• 2.2.1 Budget Set and Budget Line
• 2.2.2 Changes in the Budget Set

2.3 OPTIMAL CHOICE OF THE CONSUMER
2.4 DEMAND

• 2.4.1 Demand Curve and the Law of Demand
• 2.4.2 Deriving a Demand Curve from Indifference Curves and Budget Constraints 
• 2.4.3 Normal and Inferior Goods
• 2.4.4 Substitutes and Complements
• 2.4.5 Shifts in the Demand Curve
• 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve

2.5 MARKET DEMAND
2.6 ELASTICITY OF DEMAND

• 2.6.1 Elasticity along a Linear Demand Curve
• 2.6.2 Factors Determining Price Elasticity of Demand for a Good 
• 2.6.3 Elasticity and Expenditure

Starting of the Chapter Theory of Consumer Behaviour

In this chapter, we will study the behaviour of an individual consumer. The consumer has to decide how to spend her income on different goods1. Economists call this the problem of choice. Most naturally, any consumer will want to get a combination of goods that gives her maximum satisfaction. What will be this ‘best’
combination? This depends on the likes of the consumer and what the consumer can afford to buy. The ‘likes’ of the consumer are also called ‘preferences’. And what the consumer can afford to buy, depends on prices of the goods and the income of the consumer. This chapter presents two different approaches that explain consumer behaviour

1. Cardinal Utility Analysis
2. OrdinalUtility Analysis

Preliminary Notations and Assumptions

A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer’s choice problem in a situation where there are only two goods2: bananas and mangoes. Any combination of the amount of the two goods will be called a consumption bundle or, in short, a bundle. In general, we shall use the variable x1 to denote the quantity of bananas and x2 to denote the quantity of mangoes. x1 and x2 can be positive or zero. (x1, x2) would mean the bundle consisting of x1 quantity of bananas and x2 quantity of mangoes. For particular values of x1 and x2, (x1, x2), would give us a particular bundle. For example, the bundle (5,10) consists of 5 bananas and 10 mangoes; the bundle (10, 5) consists of 10 bananas and 5 mangoes.

2.1 UTILITY

A consumer usually decides his demand for a commodity on the basis of utility (or satisfaction) that he derives from it. What is utility? Utility of a commodity is its want-satisfying capacity. The more the need of a commodity or the stronger the desire to have it, the greater is the utility derived from the commodity.

Utility is subjective. Different individuals can get different levels of utility from the same commodity. For example, some one who likes chocolates will get much higher utility from a chocolate than some one who is not so fond of chocolates, Also, utility that one individual gets from the commodity can change with change in place and time. For example, utility from the use of a room heater will depend upon whether the individual is in Ladakh or Chennai (place) or whether it is summer or winter (time).

2.1.1 Cardinal Utility Analysis 

Cardinal utility analysis assumes that level of utility can be expressed in numbers. For example, we can measure the utility derived from a shirt and say, this shirt gives me 50 units of utility. Before discussing further, it will be useful to have a look at two important measures of utility.

Measures of Utility

Total Utility: Total utility of a fixed quantity of a commodity (TU) is the total satisfaction derived from consuming the given amount of some commodity x. More of commodity x provides more satisfaction to the consumer. TU depends on the quantity of the commodity consumed. Therefore, TUn refers to total utility derived from consuming n units of a commodity x.

Marginal Utility: Marginal utility (MU) is the change in total utility due to consumption of one additional unit of a commodity. For example, suppose 4 bananas give us 28 units of total utility and 5 bananas give us 30 units of total utility. Clearly, consumption of the 5th banana has caused total utility to increase by 2 units (30 units minus 28 units). Therefore, marginal utility of the 5th banana is 2 units. 
 

Glimpses of the Chapter Theory of Consumer Behaviour

 

NCERT Books Class 12 Microeconomics Chapter 2- Theory of Consumer Behaviour- PDF Download

Microeconomics Chapter 2- Theory of Consumer Behaviour

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