"Show That The Consumer Equilibrium Under Cardinal And Ordinal Utility Theory Are Identical" Essays and Research Papers

Show That The Consumer Equilibrium Under Cardinal And Ordinal Utility Theory Are Identical

Required: Show that the equilibrium condition and consumer equilibrium under both cardinal and ordinal utility theory are identical. They both assume that the consumer is rational. Consumer equilibrium, under cardinal utility theory, is achieved when the sufficient condition is met. That is, the total expenditure is equal to the consumer's income. If a consumer is assumed to consumes two commodities only X and Y, then: Utility is a function of Y and X; U = f(X,Y)…………………………..i Let the price...

Cardinal utility, Consumer theory, Economics 383  Words | 3  Pages

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Difference Between Cardinal and Ordinal Utility

Introduction. QN:A We all know that consumer is the one who uses goods and services to satisfy his/her wants. She /he is assumed to be rational meaning that he/she earns at utility maximization, giving his/her income and commodity prices. There several theories that have been developed to try and explain the behavior of a consumer, however they can be categorized in to two:  Cardinal utility theory:- it argues that a consumer has the capacity to measure the level of satisfaction that she derives...

Cardinal utility, Consumer theory, Economics 1170  Words | 4  Pages

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The Theory of Consumer Behavior – the Theory of Utility

Topic 6 - The Theory of Consumer Behavior – the theory of utility • The theory of consumer behaviour may be analysed by either utility theory and / or indifference curve analysis. • Note: this course only requires students to be aware of utility theory. Indifference curve analysis is undertaken in year 2 and is not a requirement of this course Basic Principles of the theory of Consumer Behaviour • Consumers are rational optimisers • Consumers seek to maximise total utilityUtility is achieved...

Cardinal utility, Consumer theory, Economics 1243  Words | 6  Pages

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Marginal Utility Theory

Discuss whether marginal utility theory is a realistic piece of economic analysis in explaining consumer demand. [13marks] Marginal utility is the extra satisfaction gained from the consumption of an additional unit of a good or service. It can be specified as the change in total utility divided by the change in quantity. The concepts of market demand and law of demand often utilized marginal utility as the backbone, the theoretical basis. An example would be the demand curve, which is usually...

Consumer theory, Economics, Giffen good 1034  Words | 3  Pages

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Theory of Consumer Behavior

Chapter 4 – Theory of Consumer Behavior Economics 11 – UPLB Prepared by T.B. Paris, Jr. December 11, 2007 Theory of Consumer Behavior    Useful for understanding the demand side of the market. Utility - amount of satisfaction derived from the consumption of a commodity ….measurement units  utils Utility concepts   cardinal utility - assumes that we can assign values for utility, (Jevons, Walras, and Marshall). E.g., derive 100 utils from eating a slice of pizza ordinal utility...

Cardinal utility, Consumer theory, Economics 596  Words | 5  Pages

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Consumer Equilibrium

UTILITY Utility refers to want satisfying power of a commodity. In objective terms, utility may be defined as the “amount of satisfaction derived from a commodity or service at a particular time”. Assumptions: • UH:\Games.exetility can be measured. • Marginal Utility of money remains constant • No change in income of the consumer, his taste & fashion to be constant • No substitute • Independent marginal utility of each unit of commodity Utility Characteristics: ...

Budget constraint, Consumer theory, Economics 634  Words | 4  Pages

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Equi Marginal Utility

nal utility Download Handbooks about Grundfos Water Utility Solutions. Wherever Water Matters... water-utility.grundfos.com • Introduction to Economics Learn Economic Principles online at Mises Academy. Enroll Today! Academy.Mises.org • Study in UK Masters Courses from Top UK Univ. Register Now & Get Expert Advice! StudyPlaces.com/Study-UK • LiDAR Mapping Specialists DigitalWorld Mapping, high accuracy high resolution, anywhere ...

Consumer theory, Economics, Good 695  Words | 4  Pages

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Utility Study

1.0: INTRODUCTION (UTILITY) Coca-Cola is an international brand that are consumed everyday all around the world. Statistic has shown that each day, more than 8 million can of Coca-Cola is being sold worldwide. However today we are not going to discuss about the secret behind Coca-Cola success. On the other hand we are going to move from production to consumer where discussion will be about the utility of Coca-Cola. Every customer has their own satisfaction level, and it is different with...

Cardinal utility, Coca-Cola, Consumer theory 2538  Words | 8  Pages

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Microeconomic Analysis Under the Pure Competition Assumption

2nd part: Microeconomic Analysis Under the Pure Competition Assumption Chap 3-The Theory of Consumer Choice (stiglitz chap 5) Section 1) Preferences: What the Consumer Wants A/ The consumer preferences * Utility= the level of happiness or satisfaction that a person receives from the consumption of goods and services. Utility is a measure of well-being * Focus on 2 goods X and Y * Cardinal/Ordinal measurements related economics problem. cardinal: a variable is cardinally measurable...

Budget constraint, Consumer theory, Indifference curve 1058  Words | 4  Pages

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Theory of Consumer Behaviour

understand the following concepts Consumer Behaviour Theory- Ordinal Approach and Cardinal Approach Total Utility, Marginal Utility, Relationship between Total Utility and Marginal Utility Law of Diminishing Marginal Utility Utility Analysis and Consumer Equilibrium- One Good Case and Two Goods Case Consumer- Who is a Consumer? Anyone who purchases and consumes any goods and services for the satisfaction of his/her wants is called a consumer. A consumer spends the money available to him for...

Consumer theory, Economics, Indifference curve 3175  Words | 14  Pages

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Consumer Behaviour and Marginal Utility

FROM: Sultan Lashari, 10K 2629 DATE: 29th/November/ 2010 SUBJECT: Consumer behavior and Marginal utility We present our report on “CONSUMER BEHAVIOR AND MARGINAL UTILITY” that was assigned to us. This report provides information related to rational behavior of individual and utility of individual This report is divided into some parts, such as the INTRODUCTION. This part gives the overview. Second heading is CONSUMER BEHAVIOR. It consists of definition and we have also explained its ASSUMPTIONS...

Consumer theory, Decision theory, Economics 1269  Words | 6  Pages

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Utility Theory

1. Explain the behavior of consumer from the point of view of Utility Theory. As consumers, we are constantly forced into making choices. They face a variety of goods and services which can be purchased, but often are limited by the amount of money with which those purchases can be made. The utility theory, also sometimes referred to as the consumer behavior theory, is often used to explain the behavior of individual consumers and the amount of satisfaction a consumer derives from the consumption...

Consumer theory, Economics, Indifference curve 1232  Words | 4  Pages

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Consumer Theory and Higher Marginal Utility

8125 E-mail : faizah@leadership.edu.my, 1. Yap receives a weekly allowance of $20 from his parents that he uses to purchase two goods: Pokemon cards (which cost $5 per pack) and comic books (which cost $4 each). Draw Yap’s budget constraint. Show what would happen if Yap’s parents lower his allowance to $15 per week. Does the opportunity cost of a comic book change? The budget constraints are shown below. When Yaps allowance falls, the budgetconstraint shifts in but keeps the same...

Budget constraint, Consumer theory, Economics 727  Words | 3  Pages

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Understanding Consumer Choice

CONSUMER CHOICE 5.0: Introduction In this unit, we shall concentrates on a consumer by looking at the behaviour of a consumer in exclusion from both other consumers and producers. Recall that a consumer is one who uses goods and services to satisfy her wants. She is assumed to be rational meaning that he aims at utility maximization; given her income and commodity prices. There are several theories that have been developed to try and explain the behaviour of a consumer. However, they can be...

Budget constraint, Consumer theory, Indifference curve 5314  Words | 20  Pages

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Law of Diminishing Marginal Utility

LAW OF DIMINISHING MARGINAL UTILITY: The law of diminishing marginal utility describes a familiar and fundamental tendency of humanbehavior. The law of diminishing marginal utility states that: “As a consumer consumes more and more units of a specific commodity, the utility from the successiveunits goes on diminishing”. Mr. H. Gossen, a German economist, was first to explain this law in 1854. Alfred Marshal later onrestated this law in the following words: “The additional benefit which a person...

Consumer theory, Economics, Indifference curve 1275  Words | 4  Pages

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Law of Equi-Marginal Utility

Marginal Utility According to this, a consumer is in equilibrium when he distributes his given money income among various goods in such a way that marginal utility derived from the last rupee spent on each good is the same. Assumptions The main assumptions of the law of equi-marginal utility are as under: (1) Independent utilities. The marginal utilities of different commodities are independent of each other and diminishes with more and more purchases. (2) Constant marginal utility of...

Consumer theory, Economics, Hermann Heinrich Gossen 1325  Words | 4  Pages

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Consumer Expenditure and Equi-Marginal Utility

Consumer Expenditure and Equi-marginal Utility Consumer behaviour theory tries to explain the relationship between price changes and consumer demand. Utility is a concept used to denote the subjective satisfaction or usefulness attained from consuming goods and services. This concept helps to explain how consumers divide their limited income / resources among different choices of goods and services that help attain them satisfaction (utility) The issue however is how we are supposed to measure...

Budget constraint, Consumer theory, Indifference curve 1705  Words | 6  Pages

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Consumer Behavior and Utility Maximization

CONSUMER BEHAVIOR AND UTILITY MAXIMIZATION Consumers are assumed to be rational. Given his money income and the market prices of various commodities, he plans the spending of his income so as to attain the highest possible satisfaction. It is possible to measure the amount or level of satisfaction that individuals get from consuming a commodity or a bundle of goods using the concept of utility. Two approaches to the concept of utility (Cardinalists and Ordinalists approach) describe how utility...

Budget constraint, Consumer theory, Economics 2449  Words | 10  Pages

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The Theory of Consumer Choice

BUZE400 Economics (Part 1) Fall 2013 Tutorial 4: The theory of consumer choice Question 1: Nargiza and Alibek are painting their apartment. At the paint store, Alibek says he prefers Canary Yellow to Bumblebee Yellow, Lime Yellow, and Crayola Yellow. Nargiza …nds new paint samples and asks Alibek to compare Canary Yellow to School Bus Yellow and to Sunrise Yellow. Alibek prefers Sunrise Yellow to Canary Yellow, and prefers School Bus Yellow to Canary Yellow. He also prefers Sunrise Yellow...

Budget constraint, Consumer theory, Convex preferences 700  Words | 3  Pages

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definition 2 1.2. Utility Theory 2 2. Description and Explanation of Cardinal and Ordinal Utility 2.1. Cardinal Utility Theory 3 2.2. Ordinal Utility Theory 5 3. Differences between Cardinal and Ordinal Utility Theories 3.1. Measurement Of Satisfaction 12 3.2. Numbers 12 3.3. Valuation of Satisfaction 13 3.4. Measuring Order 13 4. Consumer Equilibrium 4.1. Consumer Equilibrium For One Good 14 4.2. Consumer Equilibrium For Two Goods ...

Cardinal utility, Economics, Indifference curve 801  Words | 5  Pages

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Price Equilibrium & Subsidies

shortage. How to overcome it? According to the book “Economic Theory in the Malaysian Context”, the definition of price ceiling is a legally established maximum price a seller can charge. It means that the price is lower than the equilibrium market price and it cannot go above the ceiling price. The reason that government imposes ceiling price on item such as beef, flour, sugar and many more is because to ensure that consumers are able to buy these goods at a reasonable price thus prevent sellers...

Austrian School, Economic equilibrium, Microeconomics 1026  Words | 3  Pages

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The Game Theory

where strategic interaction applies in the outcome of winning. This leaves out games of pure chance (lotteries, slot machines), in which strategy doesn’t apply. This also leaves out games without strategic interaction, like solitaire.” “The Game Theory is a branch of applied mathematics that is for analyzing situations were people, or players, make interdependent decisions. The fact that everyone’s decision depends on the other players, means that each player has to consider the other player’s possible...

Cooperative game, Decision theory, Economics 795  Words | 3  Pages

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Expected Utility Theory and Risk Aversion

Expected Utility Theory and Risk Aversion Seminar Paper 1 Contents S.no. Topic Page No. 1. Acknowledgment 2 2. Introduction 3 3. Is this theory Empirically true? 8 4. 5. How do different people with different levels of risk aversion behave, under the EUT? Major Criticism: Coherence of Large & Small Stake gambles 13 16 6. Conclusion 20 7. References 21 2 Acknowledgement I would like to thank Mr. because without...

Decision theory, Economics of uncertainty, Expected utility hypothesis 5372  Words | 21  Pages

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Alternative Method to Measure Consumer Surplus

analysis, we assumed the marginal utility of money constant which was MUm=1. But in the alternative method we will not keep the marginal utility of money constant due to which we will get a comparatively low consumers surplus than the Marshillian theory of cardinal utility. Hence, we will take Money Income on Y-axis and Quantity of X on X-axis. As a result we will get a budget line MM’ and we will then make an indifference curve tangent to MM’ with the equilibrium point E. In this case AM is the total...

Analytic geometry, Consumer theory, Economics 320  Words | 2  Pages

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utility questions

just in the price (a) Explain the theoretical link between utility, price and the demand for a product. [12] (b) Discuss whether the economic analysis of a rational consumer estimating demand based at value (utility) is valid not only for standard products but also for poor quality and luxury products [13] 2011 October /November section B 2. (a). explain the link between a consumer’s expenditure and the Equi-marginal principle of utility [12] (b). analyses what is meant by economic efficiency...

Bottled water, Economic system, Economics 748  Words | 3  Pages

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Consumer Theory and Demand Curve

assumption of “More is better” means that marginal utility is never negative. TRUE FALSE 2. An individual's Engel curve can be derived from the price-consumption curve. TRUE FALSE 3. “U.S.A. should reform its health care system” is a good example of a positive statement. TRUE FALSE 4. Consumer surplus is a cardinal measure. TRUE FALSE 5. The substitution effect measures the effect of a price change on consumption, keeping utility constant. TRUE FALSE 6. The compensated...

Consumer theory, Economics, Hicksian demand function 644  Words | 5  Pages

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IPM - utility theory

Investment Decisions Under Uncertainty 7.1 Investor preferences and expected utility -If there is no uncertainty then we just need to determine how much we want to consume now and how much later i.e. assets are risk free with return certain across all states of the world -A risky asset is one whose cash flows are not certain across all possible states of the world. In finance it is commonly assumed that investors are risk averse, rational and have unlimited demand for wealth (nonsatiated) -This...

Economics of uncertainty, Expected utility hypothesis, Prospect theory 1169  Words | 4  Pages

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Compare Ordinal and Cardinal Utility

and methods. As discussed in that paper, production scheduling theory has had limited impact on practice because most scheduling results do not consider important characteristics of the environment in which scheduling occurs. In particular, researchers have not considered fully the dynamic aspects of the manufacturing system, including the planning and control systems. McKay and Wiers [6] discuss the relationship between the theory and practice of scheduling and describe three principles that explain...

Control system, Control theory, Manufacturing 3264  Words | 10  Pages

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Analyse the Purchasing Power Parity Theory and Discuss Its Applicability

Question: “Analyse the purchasing power parity theory and discuss its applicability” In this essay I will analyze the theory of Purchasing Power Parity and discuss its applicability. I will begin by explaining the basic concepts of PPP. In order to get a deeper understanding of the theory I will also briefly touch on topics such as the Law of One Price, the Big Mac index and similar subjects related to the Purchasing Power Parity theory. Furthermore the PPP theory will be put in to practice and its applicability...

Arbitrage, Big Mac Index, Currency 1908  Words | 5  Pages

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Market Equilibrium

Market Equilibrium Process ECO/560 August 1, 2012 David Flesh Market Equilibrium Process Managers must understand the market equilibrium process to make a proper determination on their products. In this paper this author will analyze the law of demand, determinants of demand law of supply, determinants of supply, market equilibrium, changes in equilibrium, Kellogg’s equilibrium analysis, efficient market theory, and surplus and shortage. Law of Supply and Demand In business there must be...

Economic efficiency, Economic equilibrium, Economic surplus 976  Words | 3  Pages

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Consumer Theory and Dancing Classes

Tutorial 4a: Consumer Behavior Q1 What is the difference between marginal and total utility? Q2 Fill in the following table on the total and marginal utilities of a certain product A. Use your results to answer the following questions. Units of product A | Total utility | Marginal utility | 0 | 0 | | 1 | 20 | _____ | 2 | 35 | _____ | 3 | _____ | 10 | 4 | _____ | 5 | 5 | _____ | 0 | 6 | 45 | _____ | 7 | 35 | _____ | 8 | _____ | –15 | (a) Graph both...

Analytic geometry, Consumer theory, Economics 757  Words | 4  Pages

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Consumer Behaviour

3 Consumer  Behavior CHAPTER 3 OUTLINE 3.1 Consumer Preferences 3.2 Budget Constraints 3.3 Consumer Choice Chapter 3: Consumer Behavior 3.4 Revealed Preference 3.5 Marginal Utility and Consumer Choice 3.6 Cost-of-Living Indexes Consumer Behavior ●theory of consumer behavior Description of how consumers allocate incomes among different goods and services to maximize their well-being. Consumer behavior is best understood in three distinct steps: Chapter 3: Consumer Behavior ...

Budget constraint, Consumer theory, Economics 2011  Words | 15  Pages

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Consumer Theory and Budget Line

 Week 6 Chapter 4: The theory of Individual Behavior Question 1. Page 154 ( with some modifications) A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5. a. Draw the budget constraint. i.e provide a carefully labeled diagram b. What is the market rate of substitution? Give an interpretation. c. Illustrate the consumer’s opportunity set in part a) above. d. Show how the consumer’s opportunity set changes if income increases by...

Budget, Budget constraint, Budgets 845  Words | 6  Pages

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Revealed Preferences Theory

ALTERNATIVE APPROACH TO CONSUMER DEMAND The model we have studied uses the preference-based approach to choice behaviour. It assumes that the consumer has preferences satisfying certain properties and that they choose what they prefer most. Preferences are,of course, something we cannot observe. So, we have begun by assuming something about things we cannot observe to ultimately make predictions about something we can observe –consumer demand behaviour. What would have happened...

Choice, Consumer theory, Convex preferences 1365  Words | 4  Pages

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Portfolio Theory

“Foundations of Portfolio Theory” by. H.M. Markowitz (1991) Foundations of Portfolio Theory by H.M. Markowitz is based on a two part lesson of microeconomics of capital markets. Part one being that taught by Markowitz, which is solely geared toward portfolio theory and how an optimizing investor would behave, whereas part two focuses on the Capital Asset Pricing Model (CAPM) which is the work done by Sharpe and Lintner. In this article Markowitz speaks strictly on portfolio theory. He states that there...

Investment, Modern portfolio theory, Probability theory 1586  Words | 5  Pages

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Theory of Consumer Behaviour

CHAPTER 3 Consumer Behavior Prepared by: Fernando & Yvonn Quijano Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. CHAPTER 3 OUTLINE 3.1 Consumer Preferences 3.2 Budget Constraints Chapter 3: Consumer Behavior 3.3 Consumer Choice 3.4 Marginal Utility and Consumer Choice Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 2 of 37 Consumer Behavior ● theory of consumer behavior...

Budget constraint, Consumer theory, Economics 2267  Words | 25  Pages

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History of Consumer Choice Theory

Economics, Psychology, and the History of Consumer Choice Theory This paper examines elements of the complex place/role/influence of psychology in the history of consumer choice theory. The paper reviews, and then challenges, the standard narrative that psychology was "in" consumer choice theory early in the neoclassical revolution, then strictly "out" during the ordinal and revealed preference revolutions, now (possibly) back in with recent developments in experimental, behavioral, and neuroeconomics...

Economics, Indifference curve, Neoclassical economics 2705  Words | 10  Pages

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Violence Against Women in India

CHAPTER 1 Consumer preference plays a crucial role in shaping the economy. It forms the basis of production activities as the consumer’s preferences influence the producer’s opportunity function. The producer in order to maximize his profit , always want to know the preferences of the consumer , as the consumer preferences affect the demand, so that he can always focus on the particular product , which the consumer prefers. The Government policies are also influenced by the preferences. Therefore...

Consumer theory, Economics, Indifference curve 1043  Words | 4  Pages

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Heckscher-Ohlin Theory

Introduction To Heckscher Ohlin's H-O Theory ↓ The Modern Theory of international trade has been advocated by Bertil Ohlin. Ohlin has drawn his ideas from Heckscher's General Equilibrium Analysis. Hence it is also known as Heckscher Ohlin (HO) Model / Theorem / Theory. [pic] According to Bertil Ohlin, trade arises due to the differences in the relative prices of different goods in different countries. The difference in commodity price is due to the difference in factor prices (i.e. costs)...

Austrian School, Capital, Economics 1330  Words | 4  Pages

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What is the purpose of economic theory? Is it necessary for consumers, firms and governments to have an economic theory in order to make rational decisions?

An economic theory can be expressed as the ideas and principles that aims to describe how economies operate taking into account elements of micro and macroeconomics (Cambridge University Press, 2013; LNPU, 2010). On one hand, microeconomics pertains to how supply and demand functions in individual markets and consumer behaviour. In contrast, macroeconomics is the study of how the entire economy works as a whole for example, why there might be a specified percentage of inflation or unemployment (Rodrigo...

Adam Smith, Capitalism, Economic system 2243  Words | 6  Pages

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Consumer Involvement Theory

explore it in more detail critiquing the theory and illustrating those critiques. Consumer Involvement Theory There exist many varying theories on consumer involvement and its effect on consumer behaviour. Essentially, consumer involvement is ‘a process, or processes by which interested and affected individuals are consulted and included in the decision making of an agency, planning group or collaborative entity’ (Creighton 1981). In marketing, consumer involvement is often equated to perceived...

Advertising, Advertising research, Cognition 2557  Words | 7  Pages

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Consumer Theory

CONSUMER THEORY I Consumer theory – deals with how a consumer chooses the best bundle of goods he/she can afford. BUDGET CONSTRAINT To know which bundle of goods a consumer can afford, we have to look into the consumer’s budget constraint. We first assume that there are only two goods, say good x1 and x2. A consumer can choose from bundle A (3, 2) – 3 units of good 1 and 2 units of good 2; bundle B (6, 5) – 6 units of good 1 and 5 units of good, so forth. Given the price of good 1 (p1),...

Budget constraint, Consumer theory, Goods 31071  Words | 138  Pages

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Nash Equilibrium Existence

corollary of Nash equilibrium existence in finitely many players games. ı Copyright © 2006 Juan Pablo Torres-Mart´nez. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 1. Introduction In game theory, the existence of equilibrium was uniformly obtained by the application of a fixed point theorem. In fact, Nash [3, 4] shows the existence of...

Continuous function, Convex, Convex function 1685  Words | 5  Pages

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Ethical Theories in Finance

Ethical Theories Sheri Wernert BUS 670: Legal Environment Professor Gentry December 19, 2010 Ethical Theories In every day life a person is bound to have ethical issues that must be decided. This is also true for the business world. With cases evolving each day of unethical companies such as Enron ethics is now being viewed as an important part of training for many companies. Which ethical theory to follow depends on the individual and there are many theories to be considered. How...

Deontological ethics, Ethics, Justice 919  Words | 3  Pages

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Equilibrium price and output for the industry, and the effect on the equilibrium of an imposition of an ad valorem tax, in relation to Cobb Douglas.

Abstract: Now as the items are perfect substitutes we can write the equation as f(x1, x2) = x1 + x2. Now this is Cobb-Douglas if the function has the form f(x1,x2) = Ax^a1 x^b2, and provides us the utility function (Varian, 2010) and the graph shown in fig 3. For the production formula it would be Q=AK^ αL^β (Renshaw, 2009)as you can see both formulas are remarkably similar, as they both steam from the original theorem. So if we set A=10 and α= β=0.5, we get Q=10K^0.5L^0.5 now if we fix capital...

Competition, Economics, Marginal cost 1850  Words | 5  Pages

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Tata’s Nano: a Small Car with Large Consumer Surplus

In spite of all these there is no dearth of cynics who conjure up a scary scene of traffic congestion and environmental hazards that the little Nano is greatly capable of perpetrating by promoting mass private transport. Critical issues: 1. Utility and Choice: In India, millions often convey on motorbikes and scooters with their entire families, perched precariously, often with luggage. This common observation – inducing heartfelt sensibility and pragmatic business sense that there is a crying...

Consumer theory, Economics, Indifference curve 1327  Words | 4  Pages

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Game Theory Through Examples

Winter Quarter 2003-2004, Stanford University Instructor:  Todd Davies Game Theory Through Examples (2/11/04) Games against nature - decision theory for a single agent Expected utility theory for a single agent is sometimes called the theory of "games against nature".  Consider this example. Example 1: Planning a party  Our agent is planning a party, and is worried about whether it will rain or not.  The utilities and probabilities for each state and action can be represented as follows:...

Decision theory, Equilibrium, Game theory 1660  Words | 7  Pages

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MARKET EQUILIBRIUM Consumers and producers react differently to price changes. Higher prices tend to reduce demand while encouraging supply, and lower prices increase demand while discouraging supply. Market equilibrium in this case refers market state where the supply in the market is equal to the demand in the market. Economic theory suggests that, in a free market there will be a single price which brings demand and supply into balance, called equilibrium price. If a market is at equilibrium...

Demand curve, Economic equilibrium, Economic surplus 1282  Words | 8  Pages

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Major Theories of Consumer Behavior and Advertising

on the hypothesis that over time there is consumers’ movement from thinking toward feeling. Also, Vaughn believes that high and low involvement (the vertical side of the matrix) is also a continuum, proposing that high involvement can decay to relatively low involvement over time. Vaughn developed a planning model by pulling together the major theories of consumer behavior and advertising to make the FCB Grid. Vaughn (1980) reviewed four traditional theories of advertising effectiveness from which...

Consumer protection, Dimension, Emotion 1243  Words | 4  Pages

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R14 Demand and Supply Analysis Consumer Demand

Supply Analysis: Consumer Demand www.irfanullah.co Graphs, charts, tables, examples, and figures are copyright 2012, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved. 1 Contents and Introduction 1. 2. 3. 4. 5. 6. Introduction Consumer Theory: From Preferences to Demand Functions Utility Theory: Modelling Preferences and Tastes The Opportunity Set: Consumption Production, and Investment Choice Consumer Equilibrium: Maximizing Utility Subject to the...

Budget constraint, Consumer theory, Giffen good 1086  Words | 27  Pages

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The Schumpeterian Theory of Economic Growth and Development

THE SCHUMPETERIAN THEORY OF ECONOMIC GROWTH AND DEVELOPMENT Schumpeter assumes a perfectly competitive economy, which is in stationary equilibrium. In such a stationary state, there is perfect competitive equilibrium, no profits no interest rates, no saving, no investment and no involuntary unemployment. This equilibrium is characterized by what Schumpeter terms as “circular flow” which continues to repeat itself in the same manner year after year. In the circular flow, the same products are produced...

Capitalism, Developed country, Developing country 1503  Words | 5  Pages

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Differences and Similiarities Between Agency Theory and Transaction Cost Theory

administrated by implicit or explicit contracts between agents and principals. The assumption of agents’ self – interest which contradicts with the principals’ interest is the basis of the agency problem. According to Alawattage and Wickramasinghe, agency theory suggests two fundamental reasons for the agency problem. First is the goal contradiction between the agent and principal. Second reason is the information asymmetry between the agent and principal.  Principal does not know the amount of effort the...

Contract, Contractual term, Cost 1229  Words | 4  Pages

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How the Existence of Firms Shows That There Are Imperfections in the Market

Business Ethics PLHB06 "How the existence of firms shows that there are imperfections in the market" Mahbubul Arefin Abir Student No: 997308300 Introduction In 1776 moral philosopher and father of modern economy published his book "The Wealth of Nations" which singlehandedly changed the way we looked at political economy. The book, which was Adam Smith's essay originally explaining why some nations are wealthier and more flourished than others, featured a few key insights. One of the...

Adam Smith, Capitalism, Economics 1022  Words | 4  Pages

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Chapter 21: The Theory of Consumer Choice

Microeconomics Chapter 21: The theory of consumer choice After developing the basic theory of consumer choice, we apply it to three questions about households decisions 1) Do all demand curves slope downward? 2) How do wages affect labour supply? 3) How do interest rates affect households saving? The budget constraint: What the consumer can afford -People consume less than they desire because their spending is constrained or limited by their income Budget constraint: the limit on...

Budget constraint, Consumer theory, Indifference curve 1460  Words | 6  Pages

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Microeconomics Theory: Lecture Objectives


Budget constraint, Consumer theory, Indifference curve 11133  Words | 39  Pages

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Are Consumers Rational?

Are consumers rational? Introduction Last couples of decades have witnessed the change of emphasis on study of consumers behaviour. Nowadays it is universally acknowledged that consumers behaviour has gradually transformed from rational buying to progressively impulsive purchase (Holbrook & Hirschman, 1982). Individuals’ perspectives towards commodities were no longer merely a concentration on utilitarian functions, instead, social and psychological utilities have become a significant yardstick...

Bounded rationality, Decision making, Decision theory 1143  Words | 5  Pages

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Marginal Utility

If marginal utility is negative, we can infer that Question 1 answers | | total utility is increasing by smaller and smaller amounts | | | total utility has fallen | | | total utility is also negative / | | | the product is an inferior good | A utility-maximising consumer changes their expenditures until Question 2 answers | | MUX = MUY for all pairs of goods / | | | TUX/PX = TUY/PY for all pairs of...

Budget constraint, Consumer theory, Goods 544  Words | 3  Pages

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Supply and Demand and Equilibrium Price

1. Suppose that the international market for beef is in equilibrium. Describe in a written sentence how the following change to a determinant of supply and/or demand will affect the equilibrium price and quantity. Illustrate each answer with a supply-and-demand diagram depicting the shift(s) and the resulting effect on price and quantity a. Outbreak of mad cow disease kills off much of the cattle stock. b. The price of chicken, a substitute, declines sharply. c...

Alfred Marshall, Consumer theory, Elasticity 699  Words | 4  Pages

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Demand/Supply and Equilibrium

Case in the news: Demand/Supply and Equilibrium This article is based on the fundamental idea of supply and demand of the iPhone 5 whose demand has outstripped its supply. Due to the fact that the demand is so high, even those who pre-ordered the new slim iPhone 5 had to wait until October to get this new phone. The sales have broken all previous records and stand tall at 2 million phones in the first 24 hours. According to the article people had been...

Consumer theory, Economic equilibrium, Elasticity 615  Words | 3  Pages

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Hailey Religion- Period 3 Mr. smith 4 March 2013 Velasio Cardinal De Paolis Cardinal De Paolis is an Italian Cardinal born in Sonnino Italy. He is currently 77 years old and was born in 1935. He was at first a part of Congregation of the missionaries of St. Charles in Italy in 1958. There, he was ordained a priest in 1961. He was sent to Rome to receive his degrees in Theology at the Pontifical Gregorian University and at Pontifical University of St. Thomas. He also received a...

Academic degree, Bishop, Clergy 546  Words | 3  Pages

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