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(PDF) Irrationality in consumer behavior

   

Added on  2021-02-19

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Table of ContentsQUESTIONS...................................................................................................................................11. Briefly discuss the following terms.........................................................................................12. Behavioural Economics and reasons behind irrational behaviour of consumers....................1

QUESTIONS1. Briefly discuss the following termsa) Consumer's Indifference Curve: In economic, consumer indifference curve refers to the graph that depicts combination oftwo different commodities which provides equivalent level of satisfaction as well as utility to theconsumers. Here, each and every point of this indifference curve shows that users are indifferentamong the two as all of the stated points are providing them equivalent utility at every time of itsconsumption. Graphical representation of this graph is downward sloping convex towards theorigin. It is mainly used to show collaboration of two different commodities that is beingconsumed by individuals. In order to identify valuable outcome, one variable is remainingconstant at a time so that satisfaction of consumer can be easily measure at another level(Harrison, 2016). It shows satisfaction of level of consumers at every level of point representedon the indifference curve. b) Marginal Rate of SubstitutionMarginal rate of substitution refers to the amount or proportion of commodity whichactual user or consumer is wishing to left for the purpose of attaining another product. This isbecause, the consumer thinks that he will get equivalent satisfaction with new productcomparatively with old product. The concept is basically used in indifference theory in order todetermine behaviour consumer effectively. Graphical representation of this curve is downwardsloping which is also called as indifference curve. MRS is basically calculated by placing twodifferent goods over same indifference curve. This shows that both the commodities are givenequivalent utility for every combination of two stated commodities that is “Commodity A” and“Commodity B”c) Consumer's Budget ConstraintsBudget constraints depicts all combination of different product or services that could bepurchased by consumer at the specific given prices which relies between their own income. Theconcept of budget constraint is commonly used in consumer theory in order to understand oranalyse choices of consumers (Howley, Buckley and Donoghue, 2015). In simple words it can besaid that consumer always wishes to maximise their satisfaction level. But, the main problemrelies in between is the limited level of income of consumers its self that is also known as1

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