Explain the Economic Model of Consumer Behavior


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Economic model (Marshallian model) :

According to economic theory, the buyers are assumed to be rational in their decision making. They follow the law of marginal utility. Consumers evaluate the alternatives available & they choose the alternative which would provide them with highest utility & lowest cost. Consumer allocates his/her expenditure over different products at given price so as to maximize utility. Thus, the law of eque-marginal utility enables him/her to secure maximum utility from limited purchasing power. The purchasing decision is based on economic calculation & reasons.

          Economic model of consumer behaviour is un-dimensional. The following presumptions are made about buying behaviour.

  • Lower the price of the product, larger will be the quantity bought- price effect.
  • Higher is the purchasing power, higher will be the quantity- Income effect.
  • Lower the price of a substitute product, lesser the quantity that will be bought of the original product- substitution effect.
  • Higher the promotional expenditure higher will be the sales – Communication effect.

 

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