Consumer behaviour

• what is utility?


  Amount of satisfaction or benefit a consumer gains from consuming a good or service
• What is marginal utility?


  The additional satisfaction or benefit gained from consuming one more unit of a good or service.
• Three assumptions of consumer behaviour


  • individual consumers try to place a value on a good or service equal to the satisfaction they perceive it will bring
  • consumers aim to maximise utility per pound spent and so will compare their perceived satisfaction with the price of good or service
  • rational consumers will only consume a good or service if the perceived satisfaction is greater than or equal to price
• What is the traditional economic theory assumption?

  They assume that consumers always act rationally, seeking to maximise satisfaction for every pound in each product that they buy
• Diminishing marginal utility

  As individuals consume more units of a good or service, the additional units give successively smaller increases in total satisfaction