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BEHAVIOR
BUS 525
Managerial Economics
THEORY OF CONSUMER
BEHAVIOUR
A consumer is an individual who purchases
goods and services from firms for the
purpose of consumption.
A manager should understand the behavior
of individuals as they generate demand for
products your firm produce
Consumer behavior characterized by
More is
Better
Y
Y
A
C
6
III
II
X
1
BUDGET
CONSTRAINT
Budget constraint restricts consumers opportunities and
choice, thus compel to choose a bundle in the
Pxbudget
X PyY set
M
Budget set gives combinations of good X and Y
affordable to the consumer
If consumer spends his entire income on the two goods
budget set can be written
asY M
PX P
Y
M
Py
M
P
x X
Py
Py
P
Bx
C Py
5
M
Px
CONSUMER
EQUILIBRIUM
Consumer
Consumer
Equilibrium
A
B
III
II
Budget
Set
6
M
Px
APPLICATIONS OF INDIFFERENCE
CURVE ANALYSIS
Choices by Consumers
Buy One, Get One Free
Other goods
(Y)
C
D
II
I
Pizza
(X)