Understanding Utility Theory: Consumer Behavior and Analysis

1. General concepts of utility theory based this theory on the basis that each commodity utility, so that consumer demand for this commodity only attributed to the utility that will get from this commodity, utility theory assumes that good behaviour or rational would mean that the consumer will distribute income to ensure to the greatest possible utility), such conduct within the possibilities of the material available, the consumer is actually the main goal of this consumer understanding and analysis Behavior accurately, it is useful to add the following key assumptions:

2. 1. the taste of the consumer will be fixed, at least in the short term. Where the consumer preference for items (a) to item (b) will continue. It is inconceivable that a consumer to change the preference for such goods within a short period of time. 2. the consumer's income is limited and fixed in the short term, and he will spend to fill the needs of various goods and services. 3. the consumer is one of many consumers, and therefore could not influence the prices of goods and services in required quantities of such goods and services.

3. In the light of these assumptions, how can the consumer distribution of income and to achieve the greatest possible benefit or gratification, or as we mentioned at the beginning of this module. Why ask a consumer item and waives the other? We can answer this question in two ways:-numerical way traditional cardinal utility-how modern ordinal ordinal utility in this context will examine the first method (numerical) leaving ordinal levels way.

4. Traditional cardinal utility numerical benefit this way old method in the study of consumer behavior, based on the quantifiable benefit and that benefit the consumer receives as a result of certain commodity consumption can be measured in units called modules utility (utils). Is a utility (util) as subjective and gaining substantive than other known units of measurement as measurement units distance or weights. Since the benefit obtained by Muhammad, for example, for a dish of rice is not the same benefit obtained by Khaled addressed with the dish.

5. In order to simplify and to understand how the numerical advantage we will assume in this part that the consumer can be calculated the number of units the benefit when the consumption of quantities of a certain commodity. For example if someone consumed a glass of milk, it might get 3 units the benefit, for example, and if Cuba II, it adds another level to the benefit of, any utility that increasingly greater consumption until this person to the extent saturation (maximum benefit), it is noted that the arrival of someone to the saturation of consumption for a given product, any increase in the consumption of this product after that may lead

6. Thedamage, thatthe newbenefitbecomingnegative. And to indicate the utility estimated the consumer of a commodity, it is helpful to examine the amount of the benefit or benefit the College, as well as to study the utility of additional consumption quantity of a commodity or the so-called marginal benefit, and also the relationship of these marginal utility benefit.