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

Pure competition and efficiency, Allocative efficiency criteria are satisfi...

Allocative efficiency criteria are satisfied by the competitive model.  Because P = MC, in each market in the economy there is no over- or under- allocation of resources in this ec

Economics, #question.what is meant by ppc?illustrate the central problems o...

#question.what is meant by ppc?illustrate the central problems of aneconomy with this curve.

Elasticity, 1. What are the uses of elasticity to the public sector and pri...

1. What are the uses of elasticity to the public sector and private sector? (20 marks)

Production possibility curve, draw a production possibility frontier task u...

draw a production possibility frontier task using the graph and value and identity the pareto efficent and inefficient point and the marginal oppotunity cost of x for each point of

What is micro economics, Micro economics is the study of individual unit of...

Micro economics is the study of individual unit of an economy

Consumer behaviour, compare and contrast between cordinal and ordinal appr...

compare and contrast between cordinal and ordinal approaches

What do you mean by the utility function, What do you mean by the utility f...

What do you mean by the utility function? The Utility Function: Sometimes this is easier to work directly along with the preference relation and its connected sets. Althou

Theory of the firm, Profit maximization is theoretically the most sound but...

Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales

What is International Cartels and Commodity Agreements, what is Internation...

what is International Cartels and Commodity Agreements? Describe briefly International Cartels and Commodity Agreements, what are Commodity agreements?

What are possible negative consequences of economic growth, What are the po...

What are the possible negative consequences of economic growth in a developing country? Define economic growth as an enhance in GDP during a given time period, and then define

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