Explain briefly the Principles Governing Consumer Behavior.

In economic analysis, the principle governing consumer behavior relates to the general behavior of a consumer in distributing a limited personal income amongst an infinite variety of goods and services available.

It assumed the following:

  • The consumer will so arrange expenditure that the relative marginal utility of all the goods consumed will be in the same proportion to their relative price;

  • A fall in the price of a good or service, other thing being equal will increase consumption of it, while a rise in its price will have the opposite effect; and

  • A rise in real income will normally result in an increased consumption of goods and services, a fall in real income having the opposite effect.

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