M1 THEORY OF CONSUMER BEHAVIOUR

• Utility - is defined as the satisfaction derived from the consumption of a commodity which determines consumption and demand behaviour. It is the foundation of consumer’s behaviour.
• Maslow’s Theory of Motivation - a model which sought to explain why

  people are driven by particular needs at particular times.
• Law of Diminishing Marginal Utility - states that consumption of more successive units of the same good increases total utility, but at a decreasing rate because marginal utility diminishes.
• Utility – means satisfaction.
• Marginal Utility – refers to the additional satisfaction of a consumer whenever he consumes one more unit of the same good.
• Diminishing Marginal Utility – refers to the situation where the addition of an extra unit of a given product results in less increase in satisfaction than the previous unit.
• Total Utility – refers to the sum of all the utilities or satisfactions obtained from the consumption of a certain quantity of goods.
• Consumer Surplus – is the difference between what consumers would be willing to pay (their reservation price) and what they actually have to pay (market price).
• Producer surplus – is the difference between what producers receive (price received) and their minimum acceptable price (reservation price).