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Economic Theory

6. THEORY OF CONSUMER BEHAVIOUR

Content

1. Human wants. Concept of Utility.
2. Law of diminishing marginal utility.
3. Law of equi-marginal utility.
4. Indifference curve and indifference map.

5. Budget line.

Key words: consumer, human wants, utility, total utility, marginal

utility, law of diminishing marginal utility, law of equi-marginal utility,
indifference curve, indifference map, budget line

1. Human Wants. Concept of Utility
The existence of human wants is the basis of all economic activity in a

society. All desires, tastes and motives of human beings are called wants in
economics.
1. Wants may arise due to elementary and psychological causes. The
wants for food, clothing and housing are elementary and psychological.

2. Wants may arise due to social causes. As members of society, we
may require a particular type of dress and food.
3. Wants arise due to customs and habits like drinking tea and

chewing.
4. Wants may arise due to advertisements.
In the early stages of civilization, wants of men were few and simple.
With advancement of civilization, wants have become unlimited and also

complex. Man tries to satisfy most of his wants through economic activity.
Since the resources are limited, he has to choose between urgent wants and
not so urgent wants. A systematic survey of this process is called

consumption. Consumption means using up of goods and services in the
satisfaction of human wants. The economics of consumption is related to a
study of nature of wants and the behavior of demand.

Characteristics of wants:
1. Wants are unlimited: Man is a bundle of desires. There is no limit
to human wants. If one set of wants are fulfilled, immediately another set

of wants would be felt. Even the richest man will have a list of wants to be
fulfilled.

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