Published by: Zaya
Published date: 15 Jun 2021
The central theme of the consumption theory is the utility-maximizing behavior of the consumer. The specific questions that consumption theory seeks to answer are:
How does a consumer decide the optimum quantity of a commodity that he chooses to consume i.e, how does a consumer attain his equilibrium? How does he decide the amount of his income to be spent on various commodities of his consumption?
The theory of consumer behavior postulates that consumers seek to maximize their total utility or satisfaction on the basis of this postulate, consumption theory explains how a consumer attains the level of maximum satisfaction, under certain given conditions. This applies to both the cardinal approach of utility and the ordinal approach utility to the analysis of consumer behavior.
Utility is defined as wants to satisfy the power or capacity of a commodity. It is a subjective entity and varies from person to person, from time to time, and place to place.
Early economists-classical and neo-classical- believed that utility is cardinally or quantitatively measurable like weight, height, air pressure, etc. this belief resulted in the cardinal utility concept.
It refers to the total satisfaction derived by the consumer from the consumption of a given quantity of goods. In other words, the total utility is the aggregate of marginal utilities.
Mathematically,
TU=∑MU
Or, TU=MU1+MU2+MU3………….+MUn
It is defined as the addition made to the utility by consuming one more unit of a commodity. It is the utility derived by consuming the final unit, or the last unit of the commodity. In other words, is the ratio of change, in the total utility with the change in the total consumption units of a commodity.
Mathematically,
MU=ΔTU/ΔQ
Marginal utility is of three types:
a. Positive Utility: When the total utility increases with the consumption of additional units of the commodity, then the marginal utility derives in a positive form even if it decreases.
b. Zero Utility: It is defined as no addition to the total utility by the consumption of an additional unit.
c. Negative Utility: When the total utility decreases with each successive unit of the commodity, the marginal utility becomes negative.