2.3.ppt-Law of Equi Marginal Utility in Business Eco

2.3.ppt-Law of Equi Marginal Utility in Business Eco

1. BUSINESS ECONOMICS
107
UNIT- 2
Faculty Name: Dr. Shuchi Singhal
Designation: Associate Professor
School/Dept: Management
Email address of Faculty Member: [email protected]

2. Programme Outcomes
2
PO1: Apply knowledge of various functional areas of business
PO2: Develop communication and professional presentation skills
PO3: Demonstrate critical thinking and Analytical skills for business
decision making
PO4: Illustrate leadership abilities to make effective and productive
teams
PO5: Explore the implications and understanding of the process of
starting a new venture
PO6: Imbibe responsible citizenship towards a sustainable society
and ecological environment
PO7: Appreciate inclusivity towards diverse cultures and imbibe
universal values
PO8: Foster Creative thinking to find innovative solutions for
various business situations

3. Course Objective and Course Outcomes
3
CO1:Understand the fundamental concepts of Business
Economics.
CO2:Analyze the relationship between consumer behaviour
and demand.
CO3:Explore the theory of production through the use of
ISO-QUANTS.
CO4:Understand the concept and relevance of short-term
and long-term cost.
CO5:Examine pricing decisions under various market
conditions.
CO6:Analyse economic challenges posed to businesses

4. Syllabus

5. Consumer Behavior and Demand
Analysis
2.1 CARDINAL UTILITY APPROACH: DIMINISHING MARGINAL UTILITY
2.2 CARDINAL UTILITY APPROACH: LAW OF EQUI- MARGINAL UTILITY
2.3 ORDINAL UTILITY APPROACH: INDIFFERENCE CURVES-Part 1
2.4 ORDINAL UTILITY APPROACH: INDIFFERENCE CURVES-Part 2
2.5 MARGINAL RATE OF SUBSTITUTION
2.6 BUDGET LINE AND CONSUMER EQUILIBRIUM
2.7 THEORY OF DEMAND
2.8 LAW OF DEMAND
2.9 MOVEMENT ALONG VS. SHIFT IN DEMAND CURVE
2.10 CONCEPT OF MEASUREMENT OF ELASTICITY OF DEMAND
2.11 FACTORS AFFECTING ELASTICITY OF DEMAND
2.12 INCOME ELASTICITY OF DEMAND, CROSS ELASTICITY OF DEMAND,
ADVERTISING ELASTICITY OF DEMAND
2.13 DEMAND FORECASTING: NEED, OBJECTIVE AND METHODS IN BRIEF
By: Shuchi Goel 5

6. 2.3 ORDINAL
UTILITY
APPROACH:
INDIFFERENCE
CURVES
By: Shuchi Goel 6

7. Suggested Readings
Author: Robert S. Pindyck & Daniel L Rubinfeld
Title of the Book: Microeconomics
Chapter’s Name: Consumer Behavior
Author: Paul A. Samuelson & William D. Nordhaus
Title of the Book: Economics
Chapter’s Name: Demand and Consumer Behaviour
https://economictimes.indiatimes.com/definition/indifference-curve
By: Shuchi Goel 7

8. 2.3 ORDINAL UTILITY APPROACH: INDIFFERENCE CURVES
Ordinal Utility Approach
•The ordinalist school postulated that utility is not measurable.
By: Shuchi Goel 8

9. •Indifference curves approach is one of the main ordinal theories.

By: Shuchi Goel 9

10. Indifference Curves:
•An indifference curve is the locus of points- particular combinations or bundles of
goods- which yield the same utility (level of satisfaction) to the consumer, so that
he is indifferent as to the particular combination he consumes.
By: Shuchi Goel 10

11. By: Shuchi Goel 11
Figure 1: A Consumer’s Indifference Curve

12. Assumptions:
1.Rationality
2. Utility is ordinal
3. Diminishing marginal rate of substitution
4. Consistency and transitivity of choice
5. Non Satiety

By: Shuchi Goel 12

13. Properties of the Indifference Curve:
1.Negative Slope
2.Higher Indifference Curves are Preferred
3.Indifference curves do not intersect
4.Convex to the origin
By: Shuchi Goel 13

14. Perfect Substitutes and Perfect Complements
•In general, we say that two goods are perfect substitutes when the marginal
rate of substitution of one for the other is a constant.
•Indifference curves describing the trade-off between the consumption of the goods
are straight lines.
By: Shuchi Goel 14

15. By: Shuchi Goel 15
Figure 5: Indifference Curve in Case
of Perfect Substitutes
Figure 6: Indifference Curve in
Case of Perfect Complements
Left Shoe
Right Shoe
Red
Pencils
Blue
Pencils

16. •Figure 6 illustrates Jane’s preferences for left shoes and right shoes.
•For Jane, the two goods are perfect complements because a left shoe will not
increase her satisfaction unless she can obtain the matching right shoe.
•In this case, the MRS of right shoes for left shoes is zero whenever there are
more right shoes than left shoes; Jane will not give up any left shoes to get
additional right shoes.
By: Shuchi Goel 16

17. •Correspondingly, the MRS is infinite whenever there are more left shoes
than right because Jane will give up all but one of her excess left shoes in
order to obtain an additional right shoe.
By: Shuchi Goel 17

18. Conclusion
•An indifference curve is the locus of points- particular combinations or bundles of
goods- which yield the same utility (level of satisfaction) to the consumer, so that
he is indifferent as to the particular combination he consumes.
•Two goods are perfect substitutes if the consumer is willing to substitute one
good for the other at a constant rate. The simplest case of perfect substitutes
occurs when the consumer is willing to substitute the goods on a one-to-one basis.
• Two goods are perfect complements when the indifference curves for both are
shaped as right angles.
By: Shuchi Goel 18