Theory of Consumer Behaviour

The theory of consumer behavior examines the decisions consumers make to satisfy their wants. It focuses on how consumers use goods and services to maximize utility (satisfaction).

Key Concepts and Definitions

Goods and Services

1. Goods:Tangible commodities that satisfy human wants. They can be seen or felt. Example: Rice, books.

2. Services: Intangible things that satisfy human wants. They cannot be seen or felt. Example: Services of an engineer or a teacher.

Types of Goods

i) Free Goods and Economic Goods

1. Free Goods: Goods that are abundant and freely available in nature. They have no monetary value. Example: Air, sunlight.

2. Economic Goods: Scarce goods with a limited supply relative to demand. They require resources to produce and have a price in the market. Examples: Food, clothing, electronics.

ii) Consumer Goods and Producer Goods

1. Consumer Goods: Goods directly used to satisfy human wants. Examples: Rice, pens.

2. Producer Goods: Goods used to produce other goods and services. They do not satisfy wants directly. Examples: Tractors, threshers, cultivators.

iii) Perishable Goods and Durable Goods

1. Perishable Goods: Goods that decay or perish quickly. Examples: Fruits, vegetables, fish.

2. Durable Goods: Goods that last for a long time. Examples: Tractors, furniture.

Wealth and Income

1. Wealth: Total assets owned by an individual, household, company, or society at a specific point in time. Includes money, property, investments, and possessions. Indicates financial stability and prosperity.

2. Income: The regular flow of money received by an individual or entity in exchange for goods, services, or returns on investments. Measured over a specific period (e.g., weekly, monthly, annually). Sources: Wages, salaries, profits, interests, dividends, rents.

Key Elements of Consumer Behaviour

i) Consumption

• The use of economic goods and services to satisfy human wants.
• It involves the destruction of utilities contained in goods.
  • Instantaneous destruction: Perishable goods (e.g., fruits).
  • Gradual destruction: Durable goods (e.g., houses, furniture).

ii) Wants

• Anything desired by a consumer is a want.
• The process of satisfying wants is called consumption.
• Goods and services satisfying human wants can be classified into:
  • Necessaries
  • Comforts
  • Luxuries

Classification of Wants

a) Necessaries
Goods and services essential for existence and efficiency.

1. Necessaries for existence: Essential for survival. Example: Food (rice).

2. Necessaries for efficiency: Maintain working capacity at a higher level. Examples: Nutritious food (Horlicks), cycles.

3. Conventional necessaries: Not essential but used out of habit or custom. Examples: Coffee, cigarettes.

b) Comforts; Goods that lead to easy living and pleasant life. Improve efficiency but with diminishing additional benefits. Example: Scooter. Difference: Returns from comforts are lower than returns from necessaries for efficiency.

c) Luxuries; Goods and services that are highly expensive and meant for prestige. Do not improve efficiency. Examples: Ornaments, bungalows, luxury cars.