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21 May, 19:12

The theory of consumer behavior assumes that - consumers behave rationally, attempting to maximize their satisfaction - consumers do not know how much marginal utility they obtain from successive units of various products - consumers have unlimited money incomes - marginal utility is constant

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  1. 21 May, 19:23
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    Consumers behave rationally, attempting to maximize their satisfaction.

    Explanation:

    The principle assumption upon which the theory of consumer behavior and demand is built is:

    A consumer attempt to allocate their limited money income among available goods and services so as to maximize their utility (satisfaction).

    Utility is described as an amount of satisfaction derived from the consumption of a commodity. Measurement units is utils.

    Assume that consumers have complete information about availability, prices and utility levels of all goods and services. All bundles of goods can be ranked based on their ability to provide utility.

    The theory is useful for understanding the demand side of the market.
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