Consumer Behavior and Utility Maximization

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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 can be gauged. The analysis of how consumers make choices can be done using the budget constraint and indifference curves. An indifference curve shows various bundles of commodities that make the consumer equally happy, or give him the same level of
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It is also assumed that the consumer’s choices are characterized by transitivity. If bundle A is preferred to B, and B is preferred to C, then bundle A is preferred to C.

Indifference curves
A consumer’s preferences allow him, to choose among various bundles of goods. If two bundles suit his taste equally, we say that he is indifferent between the two. Indifference curves show the bundles of consumption that make the consumer equally happy.

Properties of Indifference Curves
As indifference curves represent consumer preferences, they have certain properties that reflect these preferences: 1. Higher indifference curves are preferred to lower ones as consumers usually prefer more of something to less of it. 2. Indifference curves are downward slopping. The slope reflects the rate at which the consumer is willing to substitute one good for the other. If the quantity of one good is reduced, the quantity of the other good must be increased for the consumer to remain equally happy. 3. Indifference curves do not cross/ intersect.
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Since both A and C are on the same indifference curve, the two points make the consumer equally happy. Point B is on the same curve as point C hence both make the consumer equally happy. This implies that points A and B would make the consumer equally happy which is not true as point A has more of both goods. The satisfaction derived from consumption at point
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