Consumer Behavior and Utility Maximization

As a consumer, the major aim is to maximize utility at the highest level possible. However, this goal is normally pursued hand in hand with another goal of cost minimization. Consumer wants to achieve the highest satisfaction but in the lowest cost possible. Due to this reason, consumers therefore, tends to try their level best in various ways to minimize the total cost incurred in taking a product from the producer to final consumption. Apart from the cost of the product, there are other costs accompanied in taking the product for final consumption and this can be none other than the distribution expenses (Updike, 2011). This paper therefore tends to discuss this concept by describing the path a product takes to reach the final consumer in two different countries.

When A is MRS > Px /Py and when B is MRS < Px /Py. When it reaches A(B) the consumer is will probably be willing drop Y(X) in order to get more X(Y). The amount to drop is at the market.

Hence the slope of the indifference curve, i.e. the marginal rate of substitution increases, i.e.

According to the article, “The Irrational Consumer: Why Economics Is Dead Wrong About How We Make Choices,”

A utilitarian believes that pleasure or happiness is the only natural good. A utilitarian will do whatever causes the greatest amount of happiness in a situation. For this Case Study, a utilitarian may use the principle of utility to determine which course of action would lead to the greatest about of happiness overall. To do this, a utilitarian could use Bentham’s hedonistic calculus method.

Mill responds to this objection that Utilitarianism is perfectly compatible with the view that there are different kinds of pleasures. In fact, differences in the quality of a pleasure must be considered as well as differences in quantity. Mill argues that differences in quality are to be measured in preferences rather than quality. "Of two pleasures, if there be one to which all or almost all who have experience of both give a decided preference, irrespective of any feeling of moral obligation to prefer it, that is the more desirable pleasure."6

Straight line indifference curves would indicate that Bob is willing to trade one good for another. This is an example of two items being perfect substitutes of each other. Example might be Bob is willing to only trade 1 Coke for 1 Pepsi because he views both tastes the same. Bob would not trade 2 Cokes for 1 Pepsi. Another example might be Bob is willing to trade a coupon for two dollars off at McDonalds for a coupon for one dollar off at Burger King and a coupon for one dollar off at Wendy’s. Bob is impartial to all three restaurants, so in this example, bob’s willingness will be one $2-dollar coupon for two $1-dollar coupons.

In The Value of Nothing, Raj Patel makes the argument that we are encouraged by culture to think of ourselves as essentially greedy, selfish, pleasure seeking, and utility-maximizing individuals. Patel introduces the concept of homo-economicus, which states humans are covetous and self-centered beings who are solely interested in maximizing their resources and profit. During my first semester here at Babson, I had the pleasure of taking Honors Applied Calculus II, a course that focused on the business applications of calculus and how quantitative methods could potentially be used in the field of business. Throughout this course, we were challenged to maximize our materials with linear optimization and the use of calculus. We

that a product possesses these attributes. A larger attitude towards a product increases the probability of

This paper will cover the study of behavioral economics and its effect in consumer decision-making. The impact of human factors, importance of making rational decisions, and how all this ties into the economic market will be discussed in the report. This paper will include models, tables, and real world examples of a decision making process as it relates to behavioral economics and consumer buying process. The usefulness of the utility theory will be illustrated as an example pertaining to consumer behavior. The findings will show how consumer rational is

* 2. the first glass of water has great utility for him. If he takes second glass of water after that, the utility willbe less than that of the first one. It is because the edge of his thirst has been blunted to a great extent. Ifhe drinks third glass of water, the utility of the third glass will be less than that of second and so on.The utility goes on diminishing with the consumption of every successive glass water till it drops down tozero. This is the point of satiety. It is the position of consumer’s equilibrium or maximum satisfaction. If theconsumer is forced further to take a glass of water, it leads to disutility causing total utility to decline. Themarginal utility will become negative. A rational consumer will stop taking water at the point at whichmarginal utility becomes negative even if the good is free. In short, the more we have of a thing, ceterisparibus, the less we want still more of that, or to be more precise.“In given span of time, the more of a specific product a consumer obtains, the less anxious he is to getmore units of that product” or we can say that as more units of a good are consumed, additional units willprovide less additional satisfaction than previous units. The following table and graph will make the law ofdiminishing marginal

Once there is the decision to consume or purchase good s or services the common factor then becomes the need for that product which is at times evaluated based on attainability and price. In many situations if consumers are not motivated by the need to purchase then the possibility lies that they will not purchase. There may be different justifications that consumers internalize when making the decision to purchase a particular product at its given price. Different decisions supports the need to purchase a product such as

Consumption is a process of acquiring, using and disposing of goods and services. Emotions play a very large role in consumer behavior. This behavior and emotions are affected and created by the society and the culture in which the consumer lives. For example, an American may approach the purchase of a costly car with relatively less pressure than a person in a developing country where a car could be a high unaffordable luxury. The customer will comprehend brands, offers and the meaning of the product based on the understanding that he or she has of similar brands and their experience by analogy or by hearsay from peers and form an opinion. For example a new soft drink from Pepsi may not be very informative in its advertisement but that it is from the stable of PepsiCo makes the users of Pepsi brands take it in without much research. Such an opinion is not based mostly on the complete set of facts. Where there are many alternatives or the information is scarce the customer has to make a lot of effort or 'high effort' to reach a decision and such a situation could be a turnoff. On the other hand the customer may not be inclined to devolve deep into facts in case where the brand value is established and may make a decision on little or even sometimes no information. (Hoyer;

Consumer choice refers to the decisions consumers make when considering the products and services they want to purchase. Presently, in this post-industrial society, many analysts believe that social strata in many parts of the world have led to the emergence of “consumer society” (Smart, B 2014). Reasons for this are because individuals are being portrayed as having a wide range of choice as they are being presented with a wide range of products and services.

It means, at any points on indifference curve, the consumer is indifferent about how to combine the two goods. Diagrammatically, if a person chooses 6 units of good Y with 2 units of good X, his utility will not be different from choosing 4 units of Y with 3 units of X, as long as those points are still on the curve.