Introduction
The willingness of consumers to purchase a product or service is the fundamental source of profit for any business. Understanding consumer behavior is the first step in making profitable pricing, advertising, product design and production decisions. In order to make marketing decisions, managers need to know how consumers choose the bundle of goods and services they actually purchase from all possible bundles that they could purchase. Managers should be aware of the consumer-choice process when estimating the demand for the firms’ products, forecasting future demand, and making advertising decisions.
Consumer Preferences
From all the goods or services available to them, buyers choose a combination of items we call a
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It measures the number of units of Y that must be given up per unit of X added so as to maintain a constant level of utility.
MRS = ΔY/ΔX
Figure 1. A typical indifference curve
The consumer is indifferent between combinations A (4food and 45clothing) and B (6food and 30 clothing). Thus the rate at which the consumer is willing to substitute is
MRS = ΔY/ΔX = 45 - 30 / 4 - 6 = - 7.5
The MRS is 7.5, meaning that the consumer is willing to give up 7.5 units of clothing for each unit of food added.
4. Indifference curves are the further from the origin, the greater level of utility associated with the curve. Combinations of goods on higher indifference curves are preferred to combinations on lower curves.
5. Indifference curves are everywhere dense. Theoretically, any number of such indifference curves could be generated by slicing the utility surface at different altitudes so that the floor of the surface might appear "dense" with concentric indifference curves. The collection of representative indifference curves may be referred to as an indifference curve map.
Budget line
Consumers normally have limited incomes and goods are not free. Their problem is how to spend the limited income in a way that gives the maximum possible utility. A budget line is the locus of all combinations or bundles of goods that can be purchased at given prices if the
7. According to Shaw and Barry, deciding what sort of economic arrangements would best promote human happiness requires the utilitarian to consider many things. What are the five considerations mentioned by Shaw and Barry?
Consumers are the centre of many marketers work. While the consumer is part of the marketing environment, it is also very important to recognise and understand the more personal and specific influences effecting consumers and the nature of the decision making process they use.
Income elasticity of demand is used to measure how consumers respond to changes to their income and their buying power or demand of a product. To better understand how changes of income affect consumers decisions to either buy less of a specific product or more of a specific product we use the income elasticity formula. The income elasticity formula is to divide the percentage change of the quantity of a particular product demanded over the percentage of change in a person’s income. The answer will result in either a positive or negative coefficient with a threshold of zero. If the results are a positive coefficient then that specific product is considered a normal/superior good; if the results are a negative coefficient that product is considered an inferior good.
Explain in terms of the MRS why the consumer would not choose either combination A or B.
b) Additional sales dollars must be produced to cover each $1.00 of incremental advertising for Rash-Away
4. Using the following information for individuals and their willingness to pay for a bottle of ginger ale, calculate the total consumer surplus at a market price of $5.
quantity of output demanded by households, businesses, the government, and the rest of the world.
|20. |(Table: Marginal Benefit, Cost, and Consumer Surplus) The table shows six consumers' willingness to pay (his or her individual |
Understanding consumer behaviour is essential to succeed in business. As Solomon et al. (2013) stresses, businesses exist to satisfy consumer’s needs. By identifying and understanding the factors that influences their customers, firms have the opportunity to develop a more efficient strategy, marketing message and advertising campaigns that is more in line with the needs and ways of thinking of their target consumers (Perreau, 2015).
In today’s world of various products and services, businesses aim to excel and lead the competition by marketing the most number of consumers, which is a full time endeavor of business. To survive in the market, a firm or an organization has to be constantly innovating and understand the latest consumer trends and tastes. Marketers need to understand consumer behavior because the decision-making process for consumers is anything but straight forward. Consumers’ behaviors and their purchasing patterns is a huge advantage to understanding the way customers think and the reason for their purchases. Therefore, the study of consumer behavior is important because it allows the
Understanding consumer buying behavior entails marketing, relationships, and consumer behavior. Consumer behavior comprises all the consumer decisions and activities connected with the choosing, buying, using and disposing of goods and services. Marketers must pay very close attention to consumer behavior that occurs before the purchase and after the particular product has been used. Studying consumer habits is one of the steps in marketing search and analysis. In addition to other basic principles of consumer buying habits, marketers also need to study the decision and actions of real people. Until recent history the study of consumer behavior was focused on generalized consumer decisions. With
Marginal Utility by definition is the additional satisfaction a consumer gains from consuming one more unit of a good or service, which is usually positive, but can be negative. The concept implies that the utility or benefit to a consumer of an additional unit of a product is inversely related to the number of units of that product he already owns. The notion of marginal utility originated with attempts by 19th-century economists to examine and describe the economic validity of price. They believed price was partially determined by a commodity’s utility, which led to a paradox when applied to predominant price associations. This problem, commonly referred to as the
* 2. the first glass of water has great utility for him. If he takes second glass of water after that, the utility willbe less than that of the first one. It is because the edge of his thirst has been blunted to a great extent. Ifhe drinks third glass of water, the utility of the third glass will be less than that of second and so on.The utility goes on diminishing with the consumption of every successive glass water till it drops down tozero. This is the point of satiety. It is the position of consumer’s equilibrium or maximum satisfaction. If theconsumer is forced further to take a glass of water, it leads to disutility causing total utility to decline. Themarginal utility will become negative. A rational consumer will stop taking water at the point at whichmarginal utility becomes negative even if the good is free. In short, the more we have of a thing, ceterisparibus, the less we want still more of that, or to be more precise.“In given span of time, the more of a specific product a consumer obtains, the less anxious he is to getmore units of that product” or we can say that as more units of a good are consumed, additional units willprovide less additional satisfaction than previous units. The following table and graph will make the law ofdiminishing marginal
According to the passage, we know that the Quantity of meals sold by Combination (Q) is related to the average price charged (P) and the dollar amount spent on newspaper ads for each week in 1998(A). The price will influence the quantity of demand with inverse relation, and ads may lead to change of demand with positive relation.