Business Economics BBA 1 SEM UNIT 2: Theory of Consumer Behaviour
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Questions and Answers

Who introduced the utility theory in economics?

  • William Stanley Jevons (correct)
  • Adam Smith
  • John Maynard Keynes
  • Karl Marx
  • What is utility in the context of economics?

  • The quantity of a commodity
  • The market demand for a commodity
  • The want satisfying power of a commodity (correct)
  • The price of a commodity
  • What does the rationality assumption in the theory of utility entail?

  • Individuals maximize satisfaction (utility) when making choices (correct)
  • Individuals always make choices based on social influences
  • Individuals make random choices without considering utility
  • Individuals do not consider utility when making choices
  • How does the utility theory help in understanding human behavior?

    <p>By modeling rational decision making</p> Signup and view all the answers

    In economics, what does the term 'rational' refer to?

    <p>Maximizing satisfaction (utility) when choosing between options</p> Signup and view all the answers

    If an individual maximizes satisfaction (utility) when choosing between options, what assumption is being applied?

    <p>Rationality assumption</p> Signup and view all the answers

    Which theory of utility states that utility cannot be measured numerically?

    <p>Ordinal utility</p> Signup and view all the answers

    Who is associated with the formulation of the theory of Cardinal utility?

    <p>Alfred Marshall</p> Signup and view all the answers

    Which utility approach is based on marginal utility analysis?

    <p>Cardinal utility</p> Signup and view all the answers

    What is measured in terms of ranking of preferences of commodity when compared to each other?

    <p>Ordinal utility</p> Signup and view all the answers

    Who proposed the concept of ordinal utility approach?

    <p>Hicks and Allen</p> Signup and view all the answers

    In which utility approach is the satisfaction derived by the consumers from the consumption of goods or services measured numerically?

    <p>Cardinal utility</p> Signup and view all the answers

    Which concept states that the satisfaction derived from consumption cannot be measured numerically?

    <p>Ordinal utility</p> Signup and view all the answers

    Which economists are associated with the cardinal utility approach?

    <p>Alfred Marshall</p> Signup and view all the answers

    Which type of measurement does ordinal utility rely on?

    <p>Subjective measurement</p> Signup and view all the answers

    Which theory of utility is considered less realistic due to the inability to quantitatively measure utility?

    <p>Cardinal utility</p> Signup and view all the answers

    Study Notes

    Utility Theory in Economics

    • The utility theory in economics was introduced by Jeremy Bentham.

    Definition of Utility

    • In economics, utility refers to the satisfaction or pleasure an individual derives from consuming a good or service.

    Rationality Assumption

    • The rationality assumption in the theory of utility entails that individuals make choices that maximize their overall satisfaction or utility.

    Understanding Human Behavior

    • The utility theory helps in understanding human behavior by assuming that individuals make rational choices that maximize their satisfaction.

    Rationality in Economics

    • In economics, the term 'rational' refers to the ability of individuals to make choices that maximize their overall satisfaction or utility.

    Maximizing Satisfaction

    • When an individual chooses between options to maximize satisfaction (utility), the rationality assumption is being applied.

    Ordinal Utility Theory

    • The ordinal utility theory states that utility cannot be measured numerically.
    • The ordinal utility approach is based on ranking preferences of commodities when compared to each other.

    Cardinal Utility Theory

    • The cardinal utility theory was formulated by Alfred Marshall and J.R. Hicks.
    • The cardinal utility approach is based on marginal utility analysis and measures the satisfaction derived by consumers from the consumption of goods or services numerically.

    Notable Economists

    • J.R. Hicks and Alfred Marshall are associated with the cardinal utility approach.

    Ordinal Utility Measurement

    • Ordinal utility relies on ordinal measurement, which involves ranking preferences.

    Criticism of Cardinal Utility Theory

    • The cardinal utility theory is considered less realistic due to the inability to quantitatively measure utility.

    Concept of Ordinal Utility

    • The concept of ordinal utility approach was proposed by Pareto and Hicks.

    Criticism of Utility Measurement

    • The concept of ordinal utility states that the satisfaction derived from consumption cannot be measured numerically.

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    Description

    Learn about the concept of utility in business economics and its importance in consumer behavior. Understand the utility theory and its role in explaining consumer satisfaction when consuming goods.

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