Thus, the consumer gets maximum satisfaction when MU is zero and that point is known as the point of saturation. For the utility theory to work, it must be assumed that people are rational beings. In economics, rationality has a different connotation than it does in everyday speech. In economics, a person is “rational” if they make decisions that maximise utility.
Chapter 1: Introduction
This approach states that utility can not be expressed in cardinal numbers like 1,2,3, and 4, rather it can only be ranked as high or low. The concept of cardinal utility was discarded by modern economists. According to them, utility is a psychological experience that cannot be quantified in absolute terms. They believe that consumers can order different combinations of goods and services to their preferences.
Theory of Consumer Behaviour Class 12 Notes: CBSE Microeconomics Chapter 2
Utils are imaginary and psychological units that are used to measure satisfaction obtained from the consumption of a certain quantity of a commodity. It is considered to be measured in terms of cardinal numbers such as 1, 2, 3, 4, and so on. Thus, four utils are more significant than three utils, three utils are more significant than two utils, and so on. People consume different goods and services to maximise their level of satisfaction. To achieve this, it is required to ascertain the level of satisfaction attained from a certain commodity.
For study material related to Microeconomics Class 12 Chapter 2 students can visit the vedantu app. when mu is falling tu is In the diagram, TU is the total utility curve and MU is the marginal utility curve. As the consumer consumes the first unit of commodity, s/he obtains 10 utils of utility. In the above table, there are three forms of marginal utility (MU) as positive, zero, and negative marginal utility.
- To begin with, 2 apples have more utility than 1; 3 more utility than 2, and 4 more than 3.
- Any point within the area budget line is an attainable combination that a consumer can buy given his income and price of goods.
- A shift in the demand curve is caused by changes in non-price factors, such as income, taste, expectation, population, price of comparable commodities, and so on.
- It is the representation of negative utility and total utility declines.
Marketers must understand consumer purchasing behaviour for their products to succeed. Marketers must understand what motivates a consumer to buy a certain product and what prevents him from doing so. To revise these concepts, download the NCERT notes for Class 12 Microeconomics FREE of cost from the Vedantu website (vedantu.com). When the consumer buys apples he receives them in units, 1, 2, 3, 4 etc., as shown in table 1. To begin with, 2 apples have more utility than 1; 3 more utility than 2, and 4 more than 3.
Elasticity of Demand:
The units of apples which the consumer chooses are in a descending order of their utilities. When the MU becomes zero or neutral, the total utility is at its maximum. Thus, stating that the consumer has reached the optimum level of satisfaction. Though a utility cannot be measured in exact numbers, it is up to the consumer to represent his satisfaction level in terms of derived utils.
Vedantu’s revision notes for Class 12 Microeconomics Chapter 2 provide a clear and concise summary of the Theory of Consumer Behaviour. They cover essential concepts such as utility, marginal utility, and consumer equilibrium, helping you understand how consumers make decisions. The notes simplify complex ideas and include practical examples to illustrate key points. By using these notes, you’ll be able to grasp the material more effectively and apply it to exam questions with confidence. Overall, Vedantu’s notes are a valuable resource for mastering this chapter and preparing thoroughly for your exams. So long as total utility is increasing, marginal utility is decreasing up to the 4th unit.
The marginal utility can be defined as an extra utility drawn from an extra unit of a commodity. Hence, it is the change in total utility while consuming one more unit of commodity. In other words, it is the ratio of change in total utility with the change in units of a commodity (normally one unit).
Importance of Class 12 Micro Economics Chapter 2 Notes PDF on Theory of Consumer Behaviour
They must decide whether to spend money on Good 1 or Good 2. Consumers are prepared to spend lesser monetary amounts for more of a product as its utility falls with increased consumption. When the former reaches the highest point Q, the latter touches the X-axis at point С where the MU is zero. The relation between total and marginal utility is explained with the help of Table 1. The effects of price changes on the amount desired of an item are described in the form of a law known as the law of demand. Any point within the area budget line is an attainable combination that a consumer can buy given his income and price of goods.
MU is generally seen as diminishing with the consumption of each additional unit though at times it can be seen as increasing too. At the fourth sip, the MU becomes zero, which indicates that the person is not feeling thirsty anymore. Where TUx is the total utility of commodity x;ΣMUx is the sum of all the marginal utilities of commodity x.