Economic Model Of Consumer Behavior 2hv1z

Consumer Behavior Models • Uses of Consumer Behavior Models The chief purpose of proposing models is to identify the purchasing behavior of consumers. However, these models can be utilized in determining.’ • Buying attitudes of consumers. • Useful variables while purchasing. • The characteristics of various variables and • Interrelationships among them.

Consumer Behavior Models continued …… A Model may be described as a representative of an actual system. It represents the similar characteristics of a system. However various models have been proposed based on various factors such as social, environmental, psychological, etc.

Classification of models • • • • • •

Economic Model The Learning Model The Psychoanalytical Model The Sociological Model The Nicosia Model The Howard Sheth Model

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Adam smith and his followers regarded economics as the science of wealth , which studies the process of Production, consumption and accumulation of wealth . His Emphasis on wealth as a subject matter of economics is implicit in his great book “An Enquiry into the nature and causes of the wealth of the Nations “ or most popularly “Wealth of the Nations “ published in 1776

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• Alfred Marshall in his book “Principles of Economics” published in 1890 placed emphasis on human welfare or human activities rather then wealth . • Money buys goods or services that satisfy wants. In other words, economics deals with effort, wants, and the satisfaction of those wants. • A farmer who toils in the field, or a worker on an assembly, are performing an economic activity: they work to increase their material welfare (primarily by earning money).

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• The most accepted definition of economics was given by Robbins in 1932 in his book “An essay on the nature and significance of Economic science” • According to Robbins neither wealth nor human welfare should be considered as a subject matter of economics . • His Definition runs in of scarcity

• “Economy is a science which studies human behaviour as a relationship between end and scarce means ,which have alternative uses . • Thus the problem of scarcity of resources give rise to the problem of choice .

• Society will have to decide which wants to be satisfied first and which wants to be postponed for the time being .

Economic Model of Consumer Behavior

• Economic Theory was based on the following conceptions: that the purchase of any commodity gives the consumer a positive satisfaction or utility. • The additional satisfaction derived from additional purchases of the same commodity declines as the consumer's supply of that commodity increases. • And with a given amount of money to spend, the consumer distributes the expenditure among commodities to maximize the total satisfaction or utility attainable from all those purchases .

Economic Model of Consumer Behavior cont…. • The main economic variables influencing consumer behavior--that is, income and prices--from all the remaining influences, such as individual preferences, social pressures, customs, and habits. • Similarly, to assume that consumers behave as if they were rational utility maximizers helps to provide accurate predictions of a broad range of market phenomena e.g., a fall in the price of a commodity will generally lead to increased consumption of that commodity, and an increase in consumer income will lead to increased consumption of most commodities

Only persistent discrepancies between predictions and events require a modification of the model's assumptions; some examples of such cases are discussed below.

• Income as determinant • The theory points to the income of consumers as the most important single determinant of their consumption patterns.

• It follows that in any community both the average income level and the distribution of incomes are important influences on total consumption. • A community in which incomes are equally distributed consumes fewer luxury goods and fewer low-quality goods than one containing a few wealthy individuals and many poor people

• The classic model of consumers' behavior implicitly assumes that the individual enjoys a constant income. • In practice it may fluctuate according to the season, from year to year, or more generally over a lifetime. • In the short run the consumption of some commodities is much affected by these income fluctuations, while the consumption of others is affected very little.

• Consumers can also be influenced by their previous incomes. A person who owns an expensive car may continue to use it after his income falls, though at the lower level of income the individual would not choose to replace it with a similarly expensive vehicle in the long run. • This may be a rational decision, in the sense that the value of the car in use may be greater than what it is worth in the second-hand automobile market.

• Say for Eg Mr. Gopal Purchases a Ford figo for 4 lac Rs two years back , but due to some uncertainties his income level falls (due to change in job, Recession or any other reason ) though at this lower level he will not change the Car and scoda Fabia because a Skoda Fabia diesel will given him more mileage and less maintainence as compare to Ford figo • .

• Ist Thought this could be a rational decision, on the other hand if he hold this car and not selling it to purchase a Skoda fabia then also its price will be on the higher side if considered the 2nd hand market

Non Rational Influences • To be fully rational and consistent, consumers need to have access to sufficient information on goods and their prices so that they can choose those with the lowest unit price for a given quality. But consumers do not always behave this way.

• For Eg. Dabur Honey cost twice as compare to any of its close competitor like Baidyanath, Agro Based companies but despite of checking the AG Marg based product which is serving the same quality if one purchases Dabur honey . so consumer needs to have sufficient information about the goods and their prices .

• If it is costly in time for the individual to become fully informed about the comparative qualities of competing products, it is not wholly irrational for the consumer to take the market price as an indicator of quality.

Advertising Influence • The influence of modern advertising techniques must also be considered. In so far as advertising informs the consumer of the range of alternatives.

• It can be argued that advertising merely increases the consumer's information; and in so far as advertising consciously or subconsciously changes consumer preferences, it remains one of the many factors determining consumer preferences that the economist takes as given.

• Advertising, however, cannot persuade the public to buy whatever the producer offers. Advertising is likely to be most effective in influencing consumers to choose one of several almost identical products being offered .

• But it may also raise the demand for the group of competing products as a whole. In addition, it can be argued that the total effect of modern advertising is to shift the preferences of consumers in favor of luxury goods rather than necessities, in favor of consumption rather than saving, and in favor of employment rather than leisure.