Utility and consumer preferences
Utility refers to the satisfaction or enjoyment which comes from the consumption of goods over some interval of time. For simplicity, suppose that only two…
Marketing
An indifference curve shows all combinations of the two goods which yield a particular level of utility.
The shape of an indifference curve will depend upon the utility function of the individual concerned. One likely shape for an indifference curve is shown…
The individual’s budget constraint
As individuals are utility maximisers, each person seeks to be on an indifference curve as far away from the origin as possible. The extent to…
Utility maximisation subject to a budget constraint
For a consumer with a limited income (and that is all of us once our work-leisure choices have been made), the best or efficient allocation…
The efficient allocation of a consumers budget
We have just seen how a utility maximising consumer allocates a budget between two goods. It is possible to generate a simple rule from this…
DERIVATION OF THE SLOPES OF AN INDIFFERENCE CURVE AND A BUDGET CONSTRAINT
Consider one indifference curve. Let the individual consume a small additional amount of x. The effect of this on total utility is given by the…
Price changes and an individual’s demand curve
We now demonstrate that if a good rises in price, the quantity demanded of it is likely to fall. A geometric analysis of maximising utility…
The substitution and income effects of a price change
Although a consumer’s demand curve for any good x is likely to be downward sloping we cannot be certain of this because of the presence…
From individual demands to the market demand for a good
To this point , our focus has rested entirely on the individual consumer. For economic and business analysis, though, it is market demand that matters….
Need Recognition
The buying process starts with need recognition—the buyer recognizes a problem or need. The buyer senses a difference between his or her actual state and…