The Theory of Consumer Behaviour is a foundational concept in microeconomics that examines how individuals make decisions to allocate their limited income among various goods and services to maximize their satisfaction or utility.


Utility:

  1. It refers to want satisfying power of a commodity.
  2. According to Taussig, “in economics, utility is that satisfaction or advantage which is received by an individual by the use of property or wealth.”


Characteristics of Utility:

Characteristics of Utility are as follows: -

  1. It is subjective in nature, i.e., it cannot be seen but it can be realised.
  2. It is not same as usefulness. Ex.: food and drugs.
  3. Utility is relative. For example: woollen clothes (winters), cotton clothes (summers).
  4. Utility and pleasure are not identical. Ex.: medicine given to patient is useful but it does not give pleasure.
  5. It cannot be measured quantitatively. It is measures in Utils.


Forms of Utility:

Various forms of Utility are as follows: -

1. Form Utility – raw material is converted into final produce. For example – wood (furniture), wool (clothing).


2. Place Utility – when utility of a commodity is increased with the change of place by transportation, it is called Place Utility. For example – transporting rice from a farm to a city.


3. Time Utility – created by making goods or services available at the time when they are needed. For example – storing goods in warehouse for future use. (for eg. Grains).


4. Possession/Ownership Utility – created when ownership of a good or service is transferred from seller to buyer, giving the buyer the right to use it. For example – renting or leasing property.


5. Service Utility – created by providing personal services that satisfy human wants. For example: a doctor treating a patient.


Types of Utility:

Two types of Utility are: -

  1. Total Utility – it is the sum of utilities derived by a consumer from various units of goods and services, he consumes.

For instance, if a consumer consumes 5 units of a commodity X at a time and derives utility as U1, U2, U3, U4, and U5, then his total utility from commodity X can be measured as: TU(X) = U1 + U2 + U3 + U4 + U5 / ΣMU


  1. Marginal Utility – it is the utility derived from marginal units (additional units consumed). It refers to change in total utility obtained from the consumption of a commodity and can be expressed as: MU = ΔTU / ΔQ