Starting in the 18th century with Adam Smith, up to the most modern proposals, we will guide you through the theories of consumerism . You will find the definition of concepts, the presentation of formulas and examples to understand once and for all this aspect of microeconomics.
Consumer theory is a branch of microeconomics that studies people's preferences, customs and habits when purchasing products and services.
According to the Handbook of Mathematical Economics , the main objectives of theories of consumerism are to determine the impact on the demand for goods, to find out what list of eritrea consumer email rules guide people's behavior in the market and what limitations they encounter when making a decision.
For experts, commercial possibilities are determined by the combination of preferences under a budget constraint. Let us look at some examples from consumer theory.
Examples of consumer theory
Demand — Imagine you are planning a birthday party for your brother and you need to buy a cake. You go to the nearest bakery, but you find that they don’t have anything available that day. In this case, you will probably turn to a competitor , because you didn’t find what you needed at the right time. In other words, your decision was motivated by the lack of supply.
Behavior — Following the same example, now imagine that your brother loves chocolate cake. You want to do everything you can to please him on this special day, but the bakery only sells orange and corn cake. You might also turn to a competitor, but in this case your purchasing decision is predominantly influenced by one emotion: the desire to see your brother happy.
Budget Constraint — To complete the scenario, imagine that you have already spent a lot of money on party preparations and birthday gifts. You only have $20 to spend and you find out that the chocolate cake costs $18. You will definitely make the purchase, because the price is within your budget. If the figure were higher, you would probably have to find another solution.
These are just a few examples to help you understand the basic principles of consumer theory . Knowing the motivations behind attitude patterns can help you formulate better marketing strategies to attract and retain customers in your company. In addition, it increases your chances of meeting expectations before, during and after sales .
What are the main theories of consumerism?
When we talk about consumer theory in microeconomics, we are mainly referring to choices, their structures and implications. If, on the one hand, the firm can choose what and how to produce , on the other hand, individuals can choose what and how to consume.
Over the decades, several scholars have developed models of consumer behavior theories . Each of them sought to understand what motivates a purchase decision based on different assumptions .
To give you an overview of the main proposals, we have selected the most well-known and applied theories on the market. Let's go!
Classical consumer theory (18th century)
Classical consumer theory emerged in the 18th century, with the abandonment of monarchies and the arrival of Western capitalism in Europe. Its main objective is to explain how concepts of value, price, supply, demand and distribution operate in reality.
The most important work of the period is “ The Wealth of Nations ” by Adam Smith, published in 1776. According to the Scottish thinker's theory, the clash between the forces of supply and demand would self-regulate the market, balancing production costs and the final price .
Marked by rationality, this consumer theory assumes that purchasing decisions are motivated by simple necessity and that the cost of production is the determining factor in price. That is, if you need to eat, you will buy rice. If you need to dress, you will buy clothes.
If you want to study more on the subject, some of the main classical economists are: David Ricardo, Thomas Malthus, John Stuart Mill, Jean-Baptiste Say and Eugen Böhm von Bawerk.
Neoclassical consumer theory (19th century)
Neoclassical consumer theory emerged in the late 19th century, challenging the utilitarian arguments of classical economists such as Adam Smith. For this new school of thought, the consumer's perception of the value of the product is the determining factor in its price .
According to this theory of consumer behavior, purchasing decisions would be guided by the desire to maximize personal satisfaction . In this way, the value, supply and demand of a product or service would not be determined solely by its production costs, as classical theory suggests. Consumer perception would play a crucial role in this equation.
A real example of this consumer theory are luxury brands such as Louis Vuitton, Gucci or Chanel. The cost of producing a handbag, dress or perfume is lower than the price charged on the market.
