Econometrics And Econometricians December 01, 2021

Revenue curves under Different markets

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Broadly markets are of three types as follows: 1. Perfectly competitive market 2.Monopoly market 3.Monopolistic competitive market 1.Revenue curve under perfectly competitive market or Perfect competition: Under perfect competition, a firm is a price taker. It cannot influence /change the market price. AR and MR curve 2. Revenue Curve Under Monopoly: A monopolist is a price maker. He is the single seller of the product in the market. Under monopoly, however, if a firm desires to sell more , he has to reduce price of the product. Thus, there is  negative relationship  between price of the product na ddemand for the product in a monopoly market. Accordingly, a Firm’s AR curve (or the demand curve or the priice line) slopes downaward.  3. Revenue Curve Under Monopolistic Competition: In a Monopolistic Competitive market, producers sell “differentiated product” which means products whose close substitutes are easily available in the market. Under Monopolistic Compet...
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Theory of Consumer Behavior

·     Consumption: The act of destroying the utility or using up of commodities to satisfy wants is called Consumption.

 

·        Consumer: In this chapter, a consumer will be referred to as the one who takes the decision of what to buy and hoe much to buy to satisfy wants.

 

·     Rational Consumer: A consumer who seeks to maximize satisfaction while spending his income is called a Rational Consumer.

 

In study of consumer behaviour, it is assumed that the consumers are rational.

 

UTILITY 

The term Utility or theory of Marginal utility was propounded theorized by Dr. Gossen, a Prussian economist. “The power of a commodity to satisfy wants is termed as utility in Economics”.

 

Utility can be both actual and expected. Normally, it is expected because we purchase first and consume later. The study of consumer behaviour from utility perspective has been undertaken by two great economists: Professor Alfred Marshall and Professor Allen Hicks.

 

Cardinal Utility Approach 

According to Professor Marshall, the satisfaction that a consumer derives by consuming goods and services can be measured in numbers. The measurement unit of utility was referred to as “Utils”. This approach is known as Cardinal Utility Approach or Marginal Utility Analysis.

 

Ordinal Utility Approach 

Professor Hick on the other hand was of the opinion that a subjective matter cannot be measured precisely in numerical terms. However, consumers can easily rank the commodities and put them in an order according to the level of satisfaction derived.  

 

Gossen’s First Law: The Law of Diminishing Marginal Utility

The Law of Diminishing Marginal Utility (DMU) states that as more and more units of a commodity are consumed, marginal utility derived from every additional unit must decline. As it happens in respect of almost all goods and services, it is therefore called “Fundamental Law of satisfaction” or “Fundamental Psychological Law”.  

 

The Law of DMU holds good with two basic Assumption:

1.  Only standard units of commodities are consumed. eg: A cup of tea and not a spoon of tea

2. Consumption of commodity is continuous. Not that one unit of commodity is consumed now and the other unit tomorrow.

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