ECONOMICS : Consumer Behavior

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Important Terminologies: –

  • Customer: – It generally refers to anyone who is engage in evaluating, acquiring, using or disposing of goods and services.
  • Consumption : – Consumption process is involved in 3 inter-related activities of decision:-
  • Determine personal/group wants.
  • Seek Out.
  • Purchase products and use them to derive benefits
  • Income: – Income and consumption of an individual is directly related.

                                  Income = Consumption + Savings                     

  • Marginal propensity to consume :- It is the ratio of change in consumption due to change in the income
  • It lies between 0 to 1
  • Low of Consumption: – According to Keynes psychological law of consumption – “As the income of a consumer increases, expenditure on consumption also increases but not as much as increase in income.
  • Consumer surplus: – It is that extra amount which a consumer realize when he/she is willing to pay more than the seller’s selling price.

[Consumer Surplus = Expected Payment – Actual Payment]

Previous Year Question based on above topic: –

Q.1       Consumption function expresses the relationship between consumption and:-

(a) Price

(b) Investment

(c) Income

(d) Savings

Ans. (c) Exp. – Consumption Function or Keynes law or Law of Consumption gives the relationship between consumption and Income.

Q. 2 An increase in price will –

(a) Decrease producer surplus.

(b) Decrease consumer surplus

(c) Increase consumer surplus.

(d) Have no affect on consumer surplus

Ans. (b).  Increase in price will lead to decrease in consumer surplus. Because consumer surplus is the willingness to pay more amount over actual payment.



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