Wednesday, November 2, 2016

THE UTILITY FUNCTION AND CONSUMER ECONOMICS

Consumer Economics is an area of Economics that studies Consumer Buying.There are many other forms of Economics too; like Business Economics ,Managerial Economics, Labour Economics and so on. Consumer Economics is the area of Economics that studies Consumer Consumption.

Business Economics is a subsidiary of Consumer Economics in many ways. Consumer would not buy anything for which he has no Utility. So Utility function is a very important component of  Consumer Economics.

One of the ancillary axioms of Consumer Economics is the Marginal propensity to store. When there is Consumer crisis of any kind there is Marginal Propensity to Store.

The Utility Function is a function of two variables. It is directly proportional to Criticality of need and inversely proportional availability of Substitutes.  Less the availability of substitutes higher is the Utility and higher the  Criticality  of need higher is the Utility.


Factors like Supply and Demand are influenced by the Utility function and hence Inflation and Deflation. Higher the Utility function higher will be the Price in the Price-Demand relation normally discussed in Economics. Increase in price could result in increased Demand a result contrary to conventional trajectories under the influence of higher Utility functions.

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