Class 12 Economics — Chapter 2: Theory of Consumer Behaviour

What you'll learn

• ▸Cardinal Utility Analysis: TU and MU
• ▸Law of Diminishing Marginal Utility
• ▸Derivation of the Demand Curve
• ▸Ordinal Utility Analysis and Indifference Curves
• ▸Marginal Rate of Substitution (MRS)
• ▸Law of Diminishing Marginal Rate of Substitution
• ▸The Consumer's Problem of Choice

Chapter Summary

--- PAGE 1 --- Chapter 2 Theory of Consumer Behaviour In this chapter, we will study the behaviour of an individual consumer. The consumer has to decide how to spend her income on different goods¹. Economists call this the problem of choice. Most naturally, any consumer will want to get a combination of goods that gives her maximum satisfaction. What will be this 'best' combination? This depends on the likes of the consumer and what the consumer can afford to buy. The 'likes' of the consumer are also called 'preferences'. And what the consumer can afford to buy, depends on prices of the goods and the income of the consumer. This chapter presents two different approaches that explain consumer behaviour (i) Cardinal Utility Analysis and (ii) Ordinal Utility Analysis. 12103CH02 **Preliminary Notations and Assumptions** A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer's choice problem in a situation where there are only two goods²: bananas…

Practice Questions from this Chapter

Tap "Get Solution" on any question to ask our AI tutor.

1. Explain diminishing returns simply. Get Solution →
2. Measure happiness from purchases? Get Solution →
3. Compare consumer choices worldwide? Get Solution →
4. According to the chapter, what is the want-satisfying capacity of a commodity called? Get Solution →
5. What term do economists use for the problem of a consumer deciding how to spend her income on different goods? Get Solution →
6. What is the fundamental assumption of Cardinal Utility Analysis? Get Solution →
7. What is defined as the change in total utility due to the consumption of one additional unit of a commodity? Get Solution →
8. What does the Law of Diminishing Marginal Utility state? Get Solution →

Did you know?

• 💡 Chocolate was once so valuable it was used as currency by the ancient Aztecs.
• 💡 The world's most consumed fruit is actually the tomato, not the banana or mango.
• 💡 All bananas you buy are genetic clones of one original "Cavendish" plant.
• 💡 Eating too many carrots can temporarily make your skin turn orange.
• 💡 Ancient Romans believed wearing amethyst could prevent drunkenness.

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