When we are taking goods and services, we have different types of choices. If we consider two consumers, they have different options. If we compare their (The two consumers’) shopping carts, there are various types of items, as well as that two consumers’ have different utilities. Here we can identify how individual consumers allocate their income among a variety type of goods.
Importance of consumer behaviour
Consumer behaviour is the most important party to the business managers. It is beneficial for business managers to realize their goals and objectives. A consumer is an essential part of the Bussiness. Because the managers must consider the consumer’s likes and dislike, therefore they can produce goods and services according to consumer’s likes and dislike. Likewise, if the manager studies this consumer behaviour deeply, he can emphasize well the different types of choices. Managers can emphasize consumer’s choices that what is their preferences.
Also, as a marketer, he or she should know what consumer behaviour is. It is helpful for the seller to identify how individual consumer allocate their income to buying goods. Consumer behaviour consider about some particular matters
- Low of diminishing marginal utility
- Marginal utility to price ratios
- Driving the demand curve
- Income and substitution effects
Utility is an economic term. Utility is defferent from person to person. its subjective.
Total utility and marginal utility
Total utility is the total amount of satisfaction or pleasure a person gets from consuming some specific goods with some time interval. The service can be challenging to quantify. Overall efficiency gradually increases with decrease value. As an example, Coca-Cola. When a consumer gets one, Coca-Cola his r satisfaction is high; When him consuming the second Coca-Cola, satisfaction is less than before. Even though the utility is increasing, it increases gradually decline.
|Number Of Pizza||Total utility (utils)|
The utility is subjective. That means the person to person preference they are getting some goods or services. Utils measure efficiency.
Additional or extra satisfaction what we receive that is marginal utility. When we are consuming some specific quantity, an excess amount of collection is the marginal utility. The marginal utility has a downslope curve.
|Number Of Pizza||Total Utililty||Marginal Utility|
When we consider newspaper vs soft drink vending machines, If a consumer is using a newspaper machine, He or she is getting satisfaction is limit by one press because every publication has the same information. Consumer precisely not tends to use another newspaper. But when a consumer is using a soft drink vending machine, its satisfaction is different. If a consumer supposes that drink one coke can its satisfaction is utils 10. if he tries to drink also second coke can, its utility is less more than before. But he or she can try another coke can.
When we are receiving some satisfaction, impression or pleasure if it gradually decreased, that is the law of diminishing marginal utility. The level of diminishing marginal utility explains why the demand curve is sloping downward from the given product.
Theory of consumer behaviour
Theory of consumer based on few asumptions.
- Rational behaviour – Rational behaviour means that the person may make different choices under different conditions. Intelligent decisions may change as cost and benefits vary. A sensible person always tries to use his money income to obtain the highest amount of satisfaction.
- Preferences – There should have clear cut choices.
- Budget constraint – At any time consumer should have a fixed, limited amount of money.
- Prices – Every good have a price tag.
Utility maximizing rule
This gives a guide on how to spend our money. To maximize the utility, a consumer should allocate his or her money income that the last rupee spent on each product yield the same amount of marginal utility.
- Allocate income
- The last dollar spent on each good yields the same marginal utility
- Marginal utility per rupee
Income and substitution effect
The income effect is the impact that a change in the price of a product has on a consumer’s real income and consequently on the quantity demanded. The substitution effect is the impact that a difference in a product’s price has on its relative expensiveness and therefore on the amount required.
Applications and extensions
When we examine diamond and water, high total utility included in the water because water has no substitution. But overall diamond utility is low because demand has changed. Some essential goods have lower price more than unimportant products.
Marginal utility of water/Price of water = Marginal utility of diomand/Price of diomand
Now we consider iPod versus portable CD player. New products increase the consumer’s total utility. iPod has many advanced features more than a portable CD player. Therefore iPod satisfaction is high more than a portable CD player. As well as when we were buying a new smartphone, we always tend to buy a new one. Because we always try to increase satisfaction. For example, imagine that one person who works in a company.
That person has given an I phone 6 for using company calls. And he has given another offer to buy another I phone with cash. Now he does not tend to buy another I phone 6, because his satisfaction already received to him. That person is seeking new or extra comfort.
Utility and preferences
The utility is the way to represent the preferences. If preferences are high efficiency is also high. Choices affect to the service. Consumer behaviour is an essential part of the economy as a manager or seller should know how to behave with consumers in their buying activities. It is beneficial to them to manage consumer’s needs, wants and demands.