--- type: "Chapter" knowledge_type: "chapter" entity_type: "chapter" id: "66defb343f8b4e9e69bdc8c5" title: "Theory Of Consumer Behaviour" board: "CBSE" curriculum: "CBSE" class: "Class 12" subject: "Economics" book: "Introductory Microeconomics" chapter: "Theory Of Consumer Behaviour" chapter_slug: "theory-of-consumer-behaviour" canonical_url: "https://www.edzy.ai/cbse-class-12-economics-introductory-microeconomics-theory-of-consumer-behaviour" markdown_url: "https://www.edzy.ai/okf/chapter/cbse-class-12-economics-introductory-microeconomics-theory-of-consumer-behaviour.md" source_type: "examSubjectBookChapter" source_id: "66defb343f8b4e9e69bdc8c5" source_pdf: "https://edzy-ai.s3.ap-south-1.amazonaws.com/edzy-express-ts/cdd433c7-fcfe-4c28-a741-be0ca7488fc6.pdf" source: "Edzy" version: 1 last_updated: "2026-06-20" --- # Theory Of Consumer Behaviour This chapter focuses on the behaviour of an individual consumer and the problem of choice regarding the allocation of income among various goods to achieve maximum satisfaction, influenced by preferences and budget constraints. It presents two approaches: Cardinal Utility Analysis and Ordinal Utility Analysis. --- ## Knowledge Snapshot | Field | Details | | :--- | :--- | | Class | Class 12 | | Subject | Economics | | Book | Introductory Microeconomics | | Chapter | Theory Of Consumer Behaviour | | Pages | 8-35 | --- ## Chapter Summary ### Short Summary This chapter discusses how consumers make purchasing decisions based on their preferences and budget limitations. It explores concepts of utility, budget constraints, and approaches to consumer behaviour analysis. ### Detailed Summary The chapter examines consumer behaviour, focusing on how individuals choose to spend their income on goods to derive maximum satisfaction. It explains that consumer preferences dictate the choice of goods while affordability is determined by income and prices. The chapter presents two analytical approaches: Cardinal Utility Analysis, which quantifies utility in terms of numbers, and Ordinal Utility Analysis, which considers only the ranking of preferences without quantifying utility. The discussion extends to the concepts of total utility, marginal utility, and the derivation of demand curves, along with their graphical representation. Additionally, it explains how consumers' budget constraints influence their optimal choices, leading to the notions of demand and market demand, as well as elasticity of demand. --- ## Topic-Wise Explanation ### Utility Utility refers to the satisfaction or want-satisfying capacity derived from a commodity. It varies by individual and can change based on context. ### The Consumer's Budget The budget constraint represents the combinations of goods a consumer can afford based on their income and the prices of the goods. ### Optimal Choice of the Consumer A consumer's optimal choice occurs when their budget line is tangent to their indifference curve, balancing their preferences with affordability to maximize satisfaction. ### Demand Demand is defined as the quantity of a commodity that consumers are willing and able to purchase at given prices, forming the basis for the demand curve. ### Market Demand Market demand aggregates the individual demands of all consumers at various price levels, revealing overall market consumption patterns. ### Elasticity of Demand Elasticity of demand measures how sensitive demand for a good is to changes in price, differentiating between necessities and luxuries. --- ## Core Ideas | Idea | Explanation | | :--- | :--- | | Law of Diminishing Marginal Utility | As consumption of a good increases, the additional satisfaction gained from consuming each extra unit decreases. | --- ## Key Concepts | Concept | Meaning | | :--- | :--- | | Total Utility | The total satisfaction from consuming a given quantity of a good. | | Marginal Utility | The additional satisfaction gained from consuming one more unit of a good. | | Budget Line | The line representing all combinations of two goods that a consumer can afford given their income and the prices of the goods. | | Indifference Curve | A curve representing combinations of goods that provide the same level of satisfaction to the consumer. | --- ## Important Points for Revision * Consumer behaviour involves choices based on preferences and budget constraints. * Utility is subjective and varies among individuals. * Cardinal utility quantifies satisfaction, while ordinal utility ranks preferences. * The budget constraint is determined by income and prices of goods. * Demand curves illustrate the relationship between price and quantity demanded. * Market demand combines individual demand responses. * Elasticity of demand varies based on the necessity of goods. --- ## Vocabulary and Glossary | Word / Phrase | Meaning | | :--- | :--- | | Consumption Bundle | A specific combination of quantities of different goods consumed. | | Marginal Rate of Substitution | The rate at which a consumer is willing to give up one good for another while maintaining the same utility level. | --- ## Practice Questions ### Short Answer Questions 1. Define utility and its significance in consumer choices. 2. Explain the concept of the budget constraint. 3. What is the difference between total utility and marginal utility? 4. Describe the law of diminishing marginal utility. 5. What factors influence demand? ### Long Answer Questions 1. Discuss the implications of Cardinal Utility Analysis and its limitations. 2. Explain how the optimal choice of a consumer is determined graphically. 3. Analyze the factors that affect elasticity of demand and provide examples. --- ## Related Concepts - Preferences - Price elasticity - Demand curve --- ## Source Attribution | Field | Value | | :--- | :--- | | Source | Edzy | | Reference Type | examSubjectBookChapter | | Reference ID | 66defb343f8b4e9e69bdc8c5 | | Canonical URL | https://www.edzy.ai/cbse-class-12-economics-introductory-microeconomics-theory-of-consumer-behaviour | | Markdown URL | https://www.edzy.ai/okf/chapter/cbse-class-12-economics-introductory-microeconomics-theory-of-consumer-behaviour.md |