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Chapter Overview: Theory Of Consumer Behaviour

Establish the foundational choice problem: maximizing satisfaction given a fixed budget.

4 lessons8 concepts

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checklist

Before we begin

Prerequisite check for linear equations, basic graphing, and percentages.

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Before You Start — Check What You Know

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quiz

Quick Math Check

Diagnostic on solving linear combinations and calculating percentage change.

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If the price of a commodity increases from $5$ to $7$ , what is the percentage change in its price?

Hint

Concept: calculating-percentages

Remember the formula: $( \frac{\text{New Value} - \text{Old Value}}{\text{Old Value}} ) \times 100$ .

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content

The Problem of Choice

Introduction to the consumer's dilemma: balancing likes and affordability.

By the end of this chapter, you'll be able to solve problems like this: If you only have ₹40 in your pocket, and bananas cost ₹5 each while mangoes cost ₹10 each, what exact combination of bananas and mangoes should you buy to get the maximum possible satisfaction?

This is the fundamental problem of Consumer Behaviour. Every day, we face a budget constraint. We have a limited income, but we want a combination of goods that gives us the highest level of utility (satisfaction).

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Theory of Consumer Behaviour

Real-world context sets the stage for abstract microeconomic models.

photorealistic educational scene, shot on 35mm lens, natural lighting with soft bokeh, warm inviting color grading, golden hour or soft diffused daylight, professional documentary photography quality, culturally respectful. A young student standing in an outdoor market holding a limited amount of cash in one hand, looking thoughtfully between a basket of fresh bananas and a basket of mangoes, weighing their options to make the best purchase.

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Consumers must decide how to allocate their limited income across different goods to maximize satisfaction.

Concepts

01. Utility And Cardinal Analysis

Calculate and relate Total Utility and Marginal Utility, applying the Law of Diminishing Marginal Utility.

02. Ordinal Utility And Indifference Curves

Understand indifference curves, calculate Marginal Rate of Substitution (MRS), and apply properties of indifference maps.

03. The Consumer's Budget

Formulate the budget constraint, calculate intercepts and slope, and diagram shifts vs. pivots.

04. Optimal Choice Of The Consumer

Determine the utility-maximizing bundle where the indifference curve is tangent to the budget line.

05. Demand And Market Demand

Derive the demand curve, classify goods, distinguish shifts from movements, and aggregate market demand.

06. Elasticity Of Demand

Calculate Price Elasticity of Demand using the percentage method.

07. Elasticity On Curves And Expenditure

Determine elasticity along a linear demand curve (geometric measure) and relate elasticity to total expenditure.

08. Chapter Review

Synthesize chapter concepts, test analytical applications of utility, budgets, and elasticity.