Consumer

Behavior and
Maximization
CHAPTER 4
Consumer
- Is the one who demand goods and services.
- consumer is king in a capitalist or free-market economy.
Consumer Sovereignty
- our power to determine what is produced since we are the ultimate
purchasers of goods and services.
However , in certain kinds of market (oligopoly and Monopoly),
producers are so powerful consumers that is they who effectively
determine the range of choice open to us consumers.
The good society and the individual consumers, the government
restricts consumer sovereignty.
Goods and Services
- Refers to anything that provide satisfaction to the needs, wants,
and desires of the consumer.
•They can be tangible products that contribute directly (final good)
or indirectly (intermediate goods) to the satisfaction of human
needs and wants.
•Services are intangible economic activities that contribute
directly or indirectly to the satisfaction of human needs and
wants.
Consumer goods
These goods primarily sold for consumption, and not
to be used for further processing or as an input/raw
material needed in producing another good.
Usually these goods that are easily accessible to
consumers e.g. soft drinks, bread, crackers, cellular
phone load.
Essential or necessity vs Luxury
goods
Essential or necessity goods are goods that satisfy the basic needs
of man. In other words these are goods that are necessary in our
daily existence as human beings.
These goods also that we cannot live without such as food, water,
shelter, clothing, electricity, medicine, etc.
Conversely, luxury goods are those which men may do without, but
which are used to contribute to his comfort and well being.
Examples of luxury goods are private jet, yacht, luxury cars,
perfumes, jewelry, etc.
Economic and free good
An economic good is that is both useful and scare. It is value
attached to it and a price has to be paid for it use. If a good is
so abundant that there is enough of it to satisfy everyone’s
needs without anybody paying for it, that good is free.
Water from our faucet is an economic good, because we are
not utilizing it for free, we have to pay to its distributor. The air
that we breathe and the sunlight coming from the sun are
examples of free good.
Taste and Preferences
Taste and Preferences are determined by age, income,
education, gender, occupation, customs, and tradition as
well as culture.
A brand is the name, term or symbol given to a product by a
supplier in order to distinguish his offering from that similar
products supplied by competitors.
Maslow’s Hierarchy od Needs
Identifies the basic priorities of every consumer. Maslow
saw human needs in the form of hierarchy, ascending from
the lowest to the highest. He concluded that when one set
of needs is satisfied, this kind of need ceases. The human
needs placed by Maslow in an ascending order of
importance (like a pyramid) are:
Physiological needs
These are the needs for sustaining human life itself, such as food,
water, warmth, shelter, sex and sleep.
According to Maslow, until these needs are satisfied to the degree
necessary to maintain life. Other higher needs will not stimulate
people.
Safety needs
These are the needs to be free of physical danger and other fear
of losing ones work, property, food or shelter.
Social Needs
these needs cover the value of the sense of belongingness, love,
care, acceptance and understanding of family, relatives and friends,
and to be accepted by others.

Esteem needs
these needs explain the importance of self-esteem, recognition,
status of an individual and the general acceptance of the society to
an individual. This kind of need produces such satisfaction as power,
prestige, status, and self-confidence.
Self- actualization needs
These needs explain the worth of a person's self
development, growth and realization and achievement.
According to Maslow, this is the highest need in the
hierarchy. It is the desire to become what is capable of
becoming to a maximize one’s potential and to accomplish
something.
The economics satisfaction
Utility theory – in economics, refers to the satisfaction or
pleasure that an individual or consumer gets from the
consumption of a good or service that he or she purchases.
For the purposes of economic analysis, utility is also
measured by how much a consumer is willing to pay fro
good/service.
Marginal Utility
Is defined as the additional satisfaction that an individual
derives from consuming an extra unit of a good or service.
Marginal means “additional” or “extra”.
Hypothetical Demand Schedule for Siopao
Price
satiated (P)
satiated Quantity Demanded (QD )

15.00 1

12.75 2

10.50 3

8.25 4
Total Utility
Is the total satisfaction that a consumer derives from the consumption of
a given quantity of a good or service in a particular time period.
Our total utility usually increases as we consume more and more of a
good or service, but generally the increase is at a slower or declining rate.
This implies that each extra unit consumed adds less marginal utility than
the previous unit as we become satiated with the good or service we are
consuming.
The Law of marginal utility
Hypothetical Demand Schedule for Siopao
Unit Total Utility Marginal
Purchased Utility
1 40 40
2 90 50
3 170 80
4 270 90
5 350 80
Mathematical derivation of
Marginal Utility
Expanding our equation, we can solve for the
marginal utility using the following equation.

TU2 - TU1
MU=
Q2 – Q1
Where: TU2= the new total utility
TU1 = the original utility
Q2 = the new quantity consumed
Q1 = the new quantity consumed
Consumer Surplus
Is the deference between total amount that we
are willing and able to pay for a good or service
and the total amount that we actually pay for
that good.