Consumer Behavior Concepts Overview

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Questions and Answers

What is primarily studied in consumer behavior?

  • How companies improve their production processes
  • How individual customers select, buy, use, and dispose of goods and services (correct)
  • How marketers set prices for their products
  • How consumers allocate their time across various activities

Which factor is categorized as situational influences on consumer behavior?

  • Personal motivations and beliefs
  • Time and context of the purchase (correct)
  • Age and gender characteristics
  • Family and social group dynamics

Which of the following is NOT considered a benefit of understanding consumer behavior?

  • Better marketing and communications
  • Increased consumer loyalty
  • Higher production costs (correct)
  • Improved customer retention

According to Engel, Blackwell, and Mansard, what does consumer behavior primarily involve?

<p>The actions and decision processes of people for personal usage (B)</p> Signup and view all the answers

Which step is NOT part of understanding consumer behavior according to the definition provided?

<p>Marketing strategies (A)</p> Signup and view all the answers

What does Completeness in individual preferences refer to?

<p>Consumers can compare and rank all possible market baskets. (B)</p> Signup and view all the answers

What is represented by an indifference curve?

<p>All combinations of market baskets providing the same satisfaction level. (B)</p> Signup and view all the answers

What does the concept of More is better than less imply?

<p>Consumers generally prefer more of any good over less. (D)</p> Signup and view all the answers

Which of the following accurately describes the Marginal Rate of Substitution (MRS)?

<p>The maximum amount of a good sacrificed for an additional unit of another good at the same satisfaction level. (C)</p> Signup and view all the answers

Which statement is true regarding Cardinal and Ordinal Utility?

<p>Cardinal utility measures satisfaction in countable numbers, while ordinal utility does not. (A)</p> Signup and view all the answers

What does the term 'budget line' refer to?

<p>All combinations of goods where total spending equals income (C)</p> Signup and view all the answers

What happens to the budget line when there is a change in price with income unchanged?

<p>It rotates about one intercept (D)</p> Signup and view all the answers

What does the Equal Marginal Principle suggest?

<p>Utility is maximized when marginal utility per dollar spent is equal across goods (B)</p> Signup and view all the answers

What does marginal utility represent?

<p>The additional satisfaction from consuming one more unit of a good (A)</p> Signup and view all the answers

What is indicated by the saturation point of a product?

<p>It has reached its maximum potential consumer base (C)</p> Signup and view all the answers

How is consumer equilibrium achieved?

<p>When decisions about the quantity consumed of various goods are balanced (D)</p> Signup and view all the answers

What does the profit maximization rule state for firms?

<p>Marginal cost must equal marginal revenue (B)</p> Signup and view all the answers

What is diminishing marginal utility?

<p>A decrease in satisfaction derived from consuming additional units (B)</p> Signup and view all the answers

Flashcards

Consumer Behavior Definition

The process of how individuals, groups, or organizations select, buy, use, and dispose of ideas, goods, and services to satisfy their needs and wants.

Situational Factors

External, temporary factors impacting consumer decisions, such as the environment, time, and context.

Personal Factors

Characteristics like age, gender, lifestyle, and economic status influencing consumer behavior.

Social Factors

Influences on consumer behavior from family, friends, groups, and social norms.

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Consumer Behavior Theory

How consumers best allocate their income to maximize satisfaction, given their preferences and budget constraints.

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Market Basket

A list of specific amounts of one or more goods.

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Indifference Curve

A curve showing all combinations of goods providing the same satisfaction level.

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Marginal Rate of Substitution (MRS)

The maximum amount of one good a consumer is willing to trade for one more unit of another, while maintaining the same level of satisfaction.

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Perfect Substitutes

Goods that are identical in purpose and can be completely replaced for one another.

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Ordinal Utility

Ranking satisfaction levels of goods, not quantifying them numerically.

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Budget Line

A line showing all possible combinations of two goods a consumer can purchase with a given income and prices.

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Diminishing Marginal Utility

As you consume more of a good, the extra satisfaction from each additional unit decreases.

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Equal Marginal Principle

Maximizing utility occurs when the marginal utility per dollar spent is equal across all goods.

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Consumer Equilibrium

The point where a consumer maximizes their utility by consuming the optimal combination of goods.

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Total Utility

The overall satisfaction a consumer receives from consuming a specific good or service.

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Profit Maximization Rule

A firm maximizes profits when marginal cost equals marginal revenue.

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Maximize Total Utility

Consumers maximize their total utility by allocating their spending where they get the greatest marginal utility per dollar.

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Study Notes

Consumer Behavior

  • Study of how individuals, groups, or organizations select, buy, use, and dispose of ideas, services, to satisfy needs and wants
  • Actions and decisions of people who purchase goods/services for personal consumption (Engel, Blackwell, Mansard)

Importance of Consumer Behavior

  • Better marketing and communications
  • Improved customer retention
  • Increased consumer loyalty
  • Better inventory planning
  • Increased sales
  • Competitor research

Factors Influencing Consumer Behavior

  • Situational: External, temporary (environment, time, context)
  • Personal: Characteristics (age, gender, lifestyle, economic status)
  • Social: Family, friends, social groups, social norms
  • Psychological: Intrinsic (motivation, perception, beliefs, attitudes, learning)

Theory of Consumer Behavior

  • Description of how consumers allocate income among different goods and services to maximize well-being.
  • This is understood through three steps: preferences, budget constraints, and consumer choices.

Market Basket

  • List of specific quantities of one or more goods

Individual Preferences

  • Completeness: Consumers can compare and rank all possible baskets.
  • Transitivity: Consistent preferences (e.g., if A>B and B>C, then A>C).
  • More is better: Consumers prefer more of a good over less.

Indifference Curves

  • Curve representing all combinations of market baskets providing the same level of satisfaction to a consumer.

Indifference Map

  • Graph of indifference curves, showing market baskets a consumer views as equivalent.

Marginal Rate of Substitution (MRS)

  • Maximum amount of one good a consumer is willing to give up for another, maintaining the same level of satisfaction.

Convexity

  • MRS diminishes along indifference curves.

Perfect Substitutes/Complements

  • Perfect substitutes: Identical in purpose, can be exchanged.
  • Perfect complements: Cannot be consumed without each other (e.g., left and right shoes).
  • Bad goods: Prefer less than more.

Cardinal Utility

  • Satisfaction levels measured in quantifiable units (utils).
  • Consumed good/service satisfaction level can be ranked.
  • Utilized by Prof. Marshall

Ordinal Utility

  • Satisfaction levels ranked, not measured numerically.
  • Employed by Hicks and Allen.
  • (Also known as indifference curve analysis)

Effect of Income Changes on Budget Line

  • Consumer facing limited incomes.
  • Budget line: Combinations of goods where total spending equals income.

Effects of Price Changes on Budget Line

  • Changes in price (with income unchanged) causing rotation around the budget line's intercept.

Marginal Benefit/Cost

  • Marginal Benefit: Benefit from an additional unit.
  • Marginal Cost: Cost of an additional unit.

Marginal Utility

  • Additional satisfaction from an additional consumption unit.
  • Diminishing Marginal Utility: Consumption of more of a good yields smaller additional utility.
  • Equal Marginal Principle: Utility maximized when marginal utility per dollar is equal across all goods.

Maximizing Total Utility

  • Spending income on goods providing greatest marginal utility per dollar.
  • Consumer equilibrium: Decisions about how many goods/services to consume.

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