Two Approaches to Study of Consumer Behaviour in State Syllabus
Consumer behaviour basically concerned with physiology, motivation and behaviour study of the individual and of organization. It study how they select, and use the commodities and services.
Consumer behaviour refers to the actions of consumer in marketplace and highlighting the point of motive of these actions.
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market sellers can take great advantage to earn profit after taking complete knowledge of consumer behaviour.
In this article complete detail explanation given about Two Approaches to Study Consumer Behaviour.
What are the two approaches to study consumer Behaviour in economics?
There are the two approaches to explain consumer behaviour of demand given below:-
- Marginal Utility or Cardinal Approaches
- Indifference approaches or Ordinal Approaches
Economist try very hard to measure to measure utility qualitatively. Qualitative measurements in economic field done in utility form. To quantify utility economist take two approaches to study consumer behaviour like cardinal utility and ordinal utility.
What is Cardinal utility
This type of approach was deep study by group of economists leds by Professor Alfred Marshall. This approach propounded that consumers satisfaction from the consumption of any goods can be measured in terms of utility.
Satisfying power of the commodity is known as utility and can be measured in terms of cardinal numbers (1,2,3,4,.......n). Cardinal Approach can measured or expressed in Utils. According to above economists they said that utility can be measured in terms of amount of money or monetary units.
For example if a Honda company gives 5000 units, a TVS company would gives 8000 units. This is important for welfare economic which tries to put values on consumption. Allocation efficiency is said to occur when marginal cost equals marginal utility
Difference between marginal utility and total utility
Total utility is economic term can be defined as it is sum of total marginal utility consumed over period of time. Total utility is a addition of all marginal units consumed by consumer. Marginal Utility can be defined as additional utility gained after consuming single unit. Marginal utility is a extra degree of satisfaction derived by consumer from extra marginal units.
Difference between cardinal and ordinal utility approach to consumers behaviour
Difference between cardinal and ordinal utility approach to consumers behaviour is totally different in a way that ordinal utility can't be measured in numbers or digit but ordinal utility only expressed in qualitative satisfaction level achieved after consumption of goods and services.
It means that in ordinal utility what consumer needs to do is to find out his qualitative preferences in case of two or more good or commodities.
He should able to make choices from different commodities on the basis of satisfaction he achieved after consumption from different commodities.
Ordinal Approach was given by economist like Hicks, Pareto, Allen, etc.
An indifference curve is graphic representative line which shows combination of two goods that gives consumers equal level of satisfaction. Each point on indifference curve between the two and each points give equal level of satisfaction.
Difference between cardinal and ordinal utility approach to consumers behaviour in cardinal utility approach consumer is assumed to be rational. Consumer always looking for maximum satisfaction from a limited source of income.
One more important difference between cardinal and ordinal utility can be measured in number example 1, 2,3,6,.......
Marginal utility money remain constant - Money spends on a purchase of goods and services remain constant.
Diminishing marginal utility, It is assumed that in cardinal utility approach to consumers behaviour marginal utility of the commodity keep decreasing as consumption increases.