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

Programming and input-output models, Normal 0 false false f...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Quantity demanded, What is the difference between change in quantity demand...

What is the difference between change in quantity demanded and change in demand

Change in the price of a related good, Change in the price of a related goo...

Change in the price of a related good: Goods relate to each other in two ways. Goods are either complements or substitutes. Complementary goods are goods with joint demand. The

Microeconomics, Define the concept of cross elasticity of demand

Define the concept of cross elasticity of demand

Property & contracts, Analyze the various ways in which property rights enc...

Analyze the various ways in which property rights encourage economic development and make at least one recommendation for improving current laws. Explain your rationale.

Price change, 1.  Seller has ample time to adjust to price change. 2.  B...

1.  Seller has ample time to adjust to price change. 2.  Buyer's response to small price change is significant. 3.  Buyers are faced with many options when deciding to make a

How do we obtain total cost curve, Total cost curve (TC) is obtained by add...

Total cost curve (TC) is obtained by adding up vertically total fixed cost and total variable cost curves because the total cost is sum of total fixed cost and total variable cost

Economic rent, Economic Rent - Economic rent is difference between what...

Economic Rent - Economic rent is difference between what firms are willing to pay for the input less the minimum amount required to obtain it. * An Example - There are tw

Employment, Employment The calculations of human input in the producti...

Employment The calculations of human input in the production procedure. In the United States, there are two major measures of employment, as determined by the Bureau of Labor

Advanced monetary theory, Consider a hypothetical ABC economy in which the ...

Consider a hypothetical ABC economy in which the narrowly-defined measure of the  money supply (M1), as defined in the Canadian sense, in existence is 1250$ million. Assuming the e

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