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MARGINAL UTILITY AND CONSUMER BEHAVIOR












INTRODUCTION:

Demand theory is the basic of managerial economics and the concept of marginal utility plays a very important role in understanding the demand theory. Before entering into marginal utility its better to understand what is “UTILITY”.

WHAT IS UTILITY?

It is whole boutique of benefits or satisfaction that an individual gets in buying and using a service or product. In simple words it is aggregation of benefits and satisfaction. Let us discuss by relating to practical situations. Lets take an example of star bucks the very famous coffee outlet in us. What a customer gets in going for star bucks. It’s not only the coffee (the product as benefit) but also the experience, which are ambience, convinience and prestige in taking a coffee over there. He gets satisfaction in terms of emotions and product. That is why he is willing pay also a premium for the same product coffee at star bucks.

WHAT IS MARGINAL UTILITY?

It is nothing but the extra benefits and satisfaction that an individual gets when he/she is buying one more same product or service. Mathematically putting it can be change in satisfaction or benefits for every one more product he/she buys and experiences.

Marginal Utility = Change In Satisfaction And Benefits / Change In Number Of Product Or Service Experienced.

PATTERN OF MARGINAL UTILITY:

Now the question arises will the satisfaction increase or decrease for every one more product purchased and used. It can be simply demonstrated by an example.

MARGINAL UTILITY AND PRACTICAL APPLICATION:

Let us take an individual who is going for watching a movie. First time when he watches he gets fun, thrill, entertainment etc. If the movie is very good he/she may watch for second time and the thrill, fun, entertainment may increase. But if he watches for tenth time say everything gets saturated and the thrill and fun whatever he/she got Initially goes way. But there can be an occasion in between his/her first watch and tenth watch it is from where he /she loses that interest. That is called Threshold Limit Of Saturation. After that he/she loses interest.


MARGINAL UTILITY = CHANGE IN Y / CHANGE IN X
HOW IT IS RELATED TO DEMAND THEORY:

The demand theory states that at constant supply if price goes up the demand comes down. Let us relate to marginal utility.

When number of observations of that movie is more it means that supply is high and the satisfaction levels come down and so the customer is not ready to pay extra price for the extra observation. So automatically demand comes down. What can a theatre owner do to make a customer come back.hecan reduce the price of the ticket. It may motivate the customer to come back to next two times after the saturation point. But that also will not last long. He/she may go for seven times maximum.

WHY DO CONSUMERS BEHAVE LIKE THIS?

It can be psychologically explained .It may be because of boredom .It may because of loss in anxiety. But a smart consumer can increase that marginal utility by observing another movie for that same rate. This is role of competitors in the market to increase the marginal utility of an average consumer and make them shift towards their product.

CONCLUSION:

Hence the concept of marginal utility helps in explaining demand theory and also plays a very important role in marketing in understanding the consumer behavior. A through understanding of this is very essential for managers and corporates to gain competitive advantage.


PRABHU.S
KIAMS

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