Theory of cosumer behaviour - basic themes, Microeconomics

Assignment Help:

THEORY OF COSUMER  BEHAVIOUR: BASIC THEMES:

We elaborated two classical theories (viz. Cardinal Approach and Ordinal Approach). In ordinal approach discussing the indifference curve theory we show that indifference curve in general is downward sloping and strictly convex to the origin. Consumer equilibrium in ordinal approach was found out both graphically and algebrically. In the ordinal approach at equilibrium two condition must satisfied. The first condition is the equality between slope of the indifference curve and slope of the  budget line, which indicates that at equilibrium slope of the budget line must be equal to slope of the indifference curve.

The second condition shows that at equilibrium budget constraint must satisfy with equality sign, i.e., consumer spends all her income in consumption. This condition is derived from the assumption of non-satiation of all goods. The income effect and substitution effect have been presented and meanings explained. An income effect is the change in consumer demand due to unit change in income when other things are held constant and substitution effect is the change in consumer demand due to change in prices of any one good, the utility and other things remaining unchanged. In the next section, we discussed the Slutsky's theorem, which is the relationship between price effect, income effect and substitution effect. It shows that price effect is the sum of substitution effect and income effect. Finally, we discussed the compensated demand curve analysis derived by Hicks.   


Related Discussions:- Theory of cosumer behaviour - basic themes

Linear break even analysis, what do you understand by linear break-even poi...

what do you understand by linear break-even point? in what way is it useful in managerial economics? what are the assumptions underlying the analysis?

Production function and returns to factors, what is the law of diminishing ...

what is the law of diminishing marginal product? explanation with the help of proper schedule and diagram.

Ppc, ppc shows microeconomics

ppc shows microeconomics

Keynesian cross, explain how the keynesian cross shows that the economy is ...

explain how the keynesian cross shows that the economy is susceptible to self-fulfilling prophesies, either positive or negative

Location of industry and localization of industry, Location of industry and...

Location of industry and localization of industry: Location of industry tries to answer the key economic question "where to produce". It involves deciding on the area that an

HELP, Suppose Jean Splicer, an investor, buys $300,000 of shares of stock i...

Suppose Jean Splicer, an investor, buys $300,000 of shares of stock in a diversified bundle of Bio-tech firms and exactly one year later sells those shares for $315,000. Assume the

What is gross domestic product per capita, Q. What is Gross Domestic Produc...

Q. What is Gross Domestic Product Per Capita? Gross Domestic Product, Per Capita: Level of GDP divided by the population of a region or country. Changes in real GDP per capita

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd