Theory Of Consumer Choice Essays - Consumer Theory, Marginal Utility

Theory of Consumer Choice I think that it is right to begin with the Theory of consumer choice. The above consumer has expressed his preference of choice. He has a taste for seafood which he prefers above all other types of food. This does not mean that he only eats seafood, but in line with the last two elements of the theory of consumer choice, he has shown his preference for taste and on that assumption, will do the best that he can for himself to consume as much seafood as he can. The elements of the theory which govern exactly how much seafood he will consume are the first two, namely the consumer's income and the price of seafood. We can assume therefore, that the consumer will devote as much of his budgeted income for food, to as much seafood as he can afford in preference to other foods such as hamburgers. A budget line can be drawn up to show a trade off between say, fish suppers and hamburgers to indicate the combinations of fish suppers and hamburgers the consumer can afford given his income and the prices of each meal. Points on the buget line will all be within the consumers budget for food. All points below the line will show the possible combinations of dinners avaiable for his choice. All points above the line wil be unaffordable. It will be possible to see how far the consumer could indulge his passion for seafood in one week. (Slope of budget line = -Pu/Pv) The next considerations that might be taken are the marginal rate of substitution of one meal for another without changing the total utility, the diminishing marginal rate of substitution which will hold utility constant and representation of taste as indifference curves. I will not elaborate on these at this point as I believe that the marginal utility and diminishing marginal utility are more relevany and pertinent to the question. I shall now contunue by defining utility. In economic jargon, utility is a numerical method of appreciating a consumer's satisfaction. The word itself, as far as meaning is concerned, has nothing to do with its meaning in everyday language. It has nothing to do with usefulness, it is a satisfaction based unit of measurement. Marginal utility on the other hand is, in a sense, an extra utility. What is meant in economic jargon by marginal is the additional pleasure a specific good gives to a consumer. Diminishing marginal utility is the marginal utility lessening due to the growth of consumption. For example, a consumer consumes a pound of fish, and his utility is 10 units, and his marginal utility is 10 units. If the same consumer consumed two pounds of fish, his utility would be 15, but his marginal utility would be 7. The same effect on marginal utility would take place if the amount consumed further increase. Since marginal utility diminishes as the quantity of fish consumed increases, we are faced with diminishing marginal utility. The point is that no matter how good the the consumer's fish dinners are , the more that is consumed, the less satisfaction will the consumer have compared to the initial portion. This of course is down to personal taste, for consumer A may have a diminishing marginal utility that decreases a lot more slowly than consumer B. The fact remains, that at some point, both comsumers will become saturated by their love for seafood and the law of diminishing marginal utility will make itself apparent. Our consumer, as this point, will seek to substitute some of his fish dinners with hamburgers or another alternative. To conclude, the title question based on the argument above, the statement: ?I love seafood so much I can't get enough of it? may be passionate, but economically speaking is implausible. Even if theoretically speaking the consumer had access to an infinite amount of seafood and an unlimited budget, in the end the good would not satisfy the consumer enough to remain a preferred good, thus this change in preference would result in the consumer literally having had enough. First we must consider suppy and demand. Supply is the quantity of a good that sellers want to sell at every price. Demand is the quantity