Img: 1 2 3. Textbook Price: Rs. Microeconomics : Consumer Behavior : Chapter 3 In economic sense, consumer behavior theory explains the relationship between the changes in price and consumer demand. In the chapter, we have discussed the choice and utility theory.
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Utility theory A theory postulated in economics to explain behavior of individuals based on the premise people can consistently order rank their choices depending upon their preferences. It is a theory postulated in economics to explain behavior of individuals based on the premise people can consistently rank order their choices depending upon their preferences. Each individual will show different preferences, which appear to be hard-wired within each individual. Any theory, which proposes to capture preferences, is, by necessity, abstraction based on certain assumptions. The distinction between normative and positive aspects of a theory is very important in the discipline of economics. Some people argue that economic theories should be normative, which means they should be prescriptive and tell people what to do. Others argue, often successfully, that economic theories are designed to be explanations of observed behavior of agents in the market, hence positive in that sense.
The utility is a psychological phenomenon; that implies the satisfying power of a good or service. The measurability of utility is always a matter of contention. The two principal theories for the utility are cardinal utility and ordinal utility. Many traditional economists hold the view that utility is measured quantitatively, like length, height, weight, temperature, etc. This concept is known as cardinal utility concept.
In economics , a cardinal utility function or scale is a utility index that preserves preference orderings uniquely up to positive affine transformations. The two indices differ only with respect to scale and origin. Thus the use of cardinal utility imposes the assumption that levels of absolute satisfaction exist, so that the magnitudes of increments to satisfaction can be compared across different situations.