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  • Demand and the Consumer

  • Marginal Utility TheoryUtility and consumer satisfactionTotal and marginal utilitydiminishing marginal utilityThe optimum level of consumptionconsumer surplus marginal consumer surplustotal consumer surplusconsumer surplus and the marginal utility curve

  • Tinas marginal utility from petrolMU, P (pence per litre)Q (litres per annum)

    fig

  • Tinas marginal utility from petrolMU, P (pence per litre)MUQ (litres per annum)

    fig

  • Marginal Utility TheoryUtility and consumer satisfactionTotal and marginal utilitydiminishing marginal utilityThe optimum level of consumptionconsumer surplus marginal consumer surplustotal consumer surplusconsumer surplus and the marginal utility curverational consumer behaviour

  • Marginal Utility TheoryUtility and consumer satisfactionTotal and marginal utilitydiminishing marginal utilityThe optimum level of consumptionconsumer surplus marginal consumer surplustotal consumer surplusconsumer surplus and the marginal utility curverational consumer behaviourmaximising consumer surplus: P = MU

  • Consumer surplusMUP1Q1OMU, PQ

    fig

  • Consumer surplusTotalconsumerexpenditureMUP1Q1OMU, PQ

    fig

  • Consumer surplusTotalconsumerexpenditureMUTotal consumer surplusP1Q1MU, PQO

    fig

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curve

  • Deriving an individual persons demand curveMU = DMU, PQO

    fig

  • Deriving an individual persons demand curveOP1Q1aMU, PQMU = D

    fig

  • Deriving an individual persons demand curveP2Q2OP1Q1abMU, PQMU = D

    fig

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curve

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curvethe shape of the demand curve

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curvethe shape of the demand curveshifts in the demand curve

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curvethe shape of the demand curveshifts in the demand curve Limitations of the one-commodity version

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curvethe shape of the demand curveshifts in the demand curve Limitations of the one-commodity versionmarginal utility affected by consumption of other goods

  • Marginal Utility TheoryMarginal utility and the demand curvean individuals demand curvethe market demand curvethe shape of the demand curveshifts in the demand curve Limitations of the one-commodity versionmarginal utility affected by consumption of other goodsmarginal utility of money not constant

  • Risk, Uncertainty and InsuranceDemand under conditions of risk and uncertaintythe problem of imperfect informationAttitudes towards risk and uncertaintydefining risk and uncertaintytypes of oddsrisk attitudesrisk neutralrisk lovingrisk averse

  • Risk, Uncertainty and InsuranceDiminishing marginal utility of income and attitudes towards risk takingmost people are risk aversediminishing marginal utility of incomes

  • Total utility of incomeTU500010 00015 0000U1aIncome ()Total utility

    fig

  • Total utility of incomeTU500010 00015 0000U2U1abIncome ()Total utility

    fig

  • Total utility of incomeTU500010 00015 0000U3U2U1abcIncome ()Total utility

    fig

  • Total utility of incomeTU500010 00015 00008000U3U2U1U4abcIncome ()Total utilityd

    fig

  • Risk, Uncertainty and InsuranceInsurance: a way of removing riskshow insurers spread risksthe law of large numbersimportance of the independence of risksproblems for insurersadverse selectionmoral hazard

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristics

  • The characteristics of two brands of breakfast cerealQuantity of fibreQuantity of sugarf1s1O

    fig

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristicschanges in a product's characteristics

  • The characteristics of two brands of breakfast cerealQuantity of fibreQuantity of sugarf1s1O

    fig

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristicschanges in a product's characteristicsThe budget constraint

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristicschanges in a product's characteristicsThe budget constraintaffects how much of each characteristic can be purchased

  • The characteristics of two brands of breakfast cerealQuantity of fibreQuantity of sugarf1s1O

    fig

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristicschanges in a product's characteristicsThe budget constraintaffects how much of each characteristic can be purchasedeffects of a change in the budget

  • The characteristics of two brands of breakfast cerealQuantity of fibreQuantity of sugarf1s1O

    fig

  • The Characteristics ApproachConsumer choice between productsimportance of products' characteristicsIdentifying & plotting characteristicsplotting a product's mix of characteristicschanges in a product's characteristicsThe budget constraintaffects how much of each characteristic can be purchasedeffects of a change in the budgeteffects of change in a product's price

  • The characteristics of two brands of breakfast cerealQuantity of fibreQuantity of sugarf1s1O

    fig

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchased

  • The efficiency frontierQuantity of fibreHealthbranQuantity of sugarO

    fig

  • The efficiency frontier: four brandsQuantity of fibreQuantity of sugarO

    fig

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontier

  • Consuming a mixture of two productsQuantity of fibreHealthbranTastyflakesQuantity of sugarabO

    fig

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontier

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumption

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumptionindifference curves

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumptionindifference curvesplotting indifference curves

  • Choosing between brandsQuantity of characteristic AQuantity of characteristic B

    fig

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumptionindifference curvesplotting indifference curvesthe shape of the curves

  • Choosing between brandsQuantity of characteristic AQuantity of characteristic B

    fig

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumptionindifference curvesplotting indifference curvesthe shape of the curvesthe optimum consumption point

  • The Characteristics ApproachThe efficiency frontiershows the different combinations of characteristics that can be purchasedinterpreting a point on the frontiercases of shifts in the frontierThe optimum level of consumptionindifference curvesplotting indifference curvesthe shape of the curvesthe optimum consumption pointthe tangency point

  • Choosing between brandsQuantity of characteristic AQuantities of any one ofthree brands that can bepurchased for a givenbudget at current prices.Brand 2 is chosenQuantity of characteristic B

    fig

  • Choosing a mixture of brandsQuantity of characteristic AI1I2I3I4I5Brand 1Brand 2Quantity of characteristic B

    fig

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's ray

  • Choosing between brandsQuantity of characteristic AQuantity of characteristic BFall in priceof brand 1.Brand 1 is now chosen

    fig

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demand

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in income

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontier

  • Choosing a mixture of brandsQuantity of characteristic AI1I2I3I4I5Brand 1Brand 2Quantity of characteristic BRise in income

    fig

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontierchanges in a product's characteristics

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontierchanges in a product's characteristicschange in slope of product's ray

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontierchanges in a product's characteristicschange in slope of product's raymovement along new ray

  • A change in the characteristics of Brand 1Quantity of characteristic ABrand 1 (before)Brand 2Quantity of characteristic BBrand 2is chosenCharacteristicsof Brand 1 changeBrand 1 isnow chosen

    fig

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontierchanges in a product's characteristicschange in slope of product's raymovement along new raychanges in tastes

  • The Characteristics ApproachResponse to various changeschanges in a product's pricemovement along the product's rayrelationship to cross-price elasticity of demandchanges in incomeparallel movement of efficiency frontierchanges in a product's characteristicschange in slope of product's raymovement along new raychanges in tastesshift in indifference curves

  • The Characteristics ApproachUsefulness of characteristics approachhelps understand the nature of consumer choicehelps firms in understanding the effects of making changesto consumer perceptionsthrough changing product specificationsby promoting various characteristics through advertisingrepositioning its product

  • Options open to the firm producing Brand 1Quantity of characteristic AI1I2I3I4I5Brand 1Brand 2Brand 3aQuantity of characteristic BbcEffect oflowering prices,or advertising

    fig

  • The Characteristics ApproachUsefulness of characteristics approachhelps understand the nature of consumer choicehelps firms in understanding the effects of making changesto consumer perceptionsthrough changing product specificationsby promoting various characteristics through advertisingrepositioning its productlaunching a new brand

  • The Characteristics ApproachLimitations of characteristics approachproblem in measuring characteristicsmost products have many characteristicsonly two characteristics can be plottedproblem in identifying indifference curveshard for one individualmore difficult for whole marketsbut can divide markets into segmentsconsumer tastes change

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