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Consumer Behavior for Managerial Economics Mcom Delhi University

Consumer Behavior for Managerial Economics Mcom Delhi University

Consumer Behavior for Managerial Economics Mcom Delhi University

Theory of Consumer Behavior

This chapter has provided the theoretical underpinnings for demand analysis. We began with the assumption that consumers can rank various bundles of goods as to whether they prefer one bundle to another or are indifferent between the two. We then constructed an indifference curve showing all combinations of two commodities among which a consumer is indifferent. The collection of all indifference curves—the consumer’s indifference map—shows what the consumer is willing to purchase. On a more technical level, we discussed why the marginal rate of substitution diminishes as more of good is consumed and why the slope of the indifference curve—the marginal rate of substitution—is equal to the ratio of the marginal utilities of the two commodities:

The consumers’ budget line determines what the consumer is able to consume. The budget line is a straight line with a slope equal to the ratio of the prices of the two commodities:

As income changes, the budget line shifts. As price changes, the budget line rotates.

The consumer maximizes utility subject to the constraint of a limited income by consuming that combination of the two commodities at which the budget line is tangent to an indifference curve. At that point, the slope of the budget line is equal to the slope of the highest attainable indifference curve, so the maximization condition can be expressed as

An individual consumer’s demand curve can be derived by holding income and the prices of all other commodities constant and then altering the price of one commodity and observing how the constrained utilitymaximizing consumption of that commodity changes. Price changes have two effects: a substitution effect and an income effect. The substitution effect of a price change upon the consumption of a good is always negative; that is, quantity demanded varies inversely with price, holding utility constant and considering the substitution effect only. If the good is normal, the income effect reinforces the substitution effect. If the good is inferior, the income effect offsets to some extent the substitution effect.

The market demand curve is the horizontal summation of the demand curves of all consumers in the market. It shows how much all consumers demand at each price in the relevant range of prices.

Consumer Behavior for Managerial Economics Mcom Delhi University

Introduction Diversity and multiculturalism accounts for large differences in consumption behavior. Consumers differ not only demographically but in their activities and interests too. With all this diversity around, the marketer has to understand the consumer buying behavior through systematic consumer research. This activity helps the marketer understand the nature of differences between consumers and how he can segment the market.

Consumer Behavior for Managerial Economics Mcom Delhi University

“Consumer behavior refers to the actions and decision processes of people who purchase goods and services for personal consumption”. – Engel, Blackwell and Miniard.

It is “the behavior that consumers display in searching for, purchasing, using, evaluating and disposing of products and services that they expect will satisfy their needs.”- Schiffman and Kanuk.

Consumer behavior is defined as activities people undertake when obtaining, consuming and disposing of products and services. As seen from the definition, the activities involved are:

  • Obtaining- it refers to the activities leading up to and including the purchase or receipt of a product. Thus it involves activities such as information search for alternative product options, evaluating those alternatives and actual purchase of products of particular brands. Example- we have a need for storing data electronically. We have options of a personal computer or a personal notebook. We need to evaluate these alternatives on certain parameters such as dependability, mobility etc. After selecting an option we decide on the particular brand of the data storage device.
  • Consuming- refers to how, where, when and under what circumstances consumers use products.
  • Disposing- how consumers get rid off the product. This helps marketers design their product replacement strategies.

Thus, consumer behavior is a rapidly growing discipline that represents a complex and multidimensional process which reflects the totality of consumer’s decisions with respect to acquisition, consumption and disposal activities given the various constraints of time, effort and money. There are two sides of consumer behavior. The final purchase stage which is visible and the intermediate decision stages that are invisible. Recently, marketers have started considering ‘Consumption analysis’ which gives a holistic picture of consumer’s consumption behavior wherein the why’s and how’s of consumption are also studied along with why’s and how’s of purchase.

Consumer Behavior for Managerial Economics Mcom Delhi University

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Consumer Behavior for Managerial Economics Mcom Delhi University

Consumer Behavior for Managerial Economics Mcom Delhi University

Description: The Department runs the prime course of Master of Commerce for which the department was established in 1967. This is one of the prestigious courses in the country. The Alumni of this course are well placed in business, academics and administration in the country and abroad. The program is well received in the industry and for years had been serving the needs of managerial cadre in business and industry. The course serves the needs of academics as well and prepares students for research and teaching in business studies teaching for M.Com taught at the Department of Commerce, Faculty of Commerce & Business, Delhi School of Economics, University of Delhi, Delhi-110007

Recommended Mcom Notes

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Consumer Behavior for Managerial Economics Mcom Delhi University

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