101 Economics - Consumer Theory Easily Explained

2732 Words Apr 30th, 2012 11 Pages

From http://www.economicswebinstitute.org/essays/consumertheory.htm

The standard textbook model of consumer is an outstanding example of the neoclassical paradigm in economics [1]: a h y p e r-rational agent maximises something by choosing an "optimal" bundle of things. Here, the hyper-rational consumer maximises utility (i. e. an overall generic measure of well-being) by exhausting a given budget. He has a pre-defined income to spend on - for simplicity 's sake - two goods, called X and Y, respectively. He could spend his entire income buying only X, thus purchasing a quantity of X equal to income divided by the
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Choices are sequential.

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Neoclassical approach T h e c o n s u m e r h a s f u l l Limited information. consumer information about all existing products, their use and their effects on his welfare (utility). Degree of difficulty o f Zero. The choice is always C h o i c e c a n b e easy, the choice easy, with all pros and cons moderate or extremely already evaluated and difficult, d e p e n d i n g o n compressed in a monotonic the situation. measure (utility). I m p o r t a n c e advertising o f None. The consumer has its own tastes and they can 't be changed. T h e l i m i t e d information of the consumer can be extended by advertising. Depending on the decision-m a k i n g s t y l e , advertising can have an important influence beyond the mere information. Importance of the opinion of others None. The consumer stands T h e c o n s u m e r c a n alone in her/his preferences. explicitly ask others or at least have contact with the opinion of others, who are stratified according to the relationship to the consumer (e.g. friends, teachers,...). None. The consumer can receive i n s t r u c t i o n t o appropriately use the product and enjoy it better. The label can show third party certification of q u a l i t y , e . g . environmental friendliness b y ECOLABEL.

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