Consumer Decision Making

Study Notes

Consumer decision making is the process by which individuals make choices about what, how, and when to purchase goods and services.
Factors influencing consumer decision making:
- Personal factors: age, income, occupation, lifestyle, and personality
- Psychological factors: motivation, perception, and learning
- Social factors: family, culture, and social status
- Economic factors: price, quality, and availability
Decision making models:
- Rational choice model: consumers make decisions based on complete and perfect information
- Behavioral choice model: consumers make decisions based on biases, heuristics, and mental shortcuts

Scarcity refers to the fundamental economic problem of unlimited wants and needs, but limited resources.
Scarcity leads to:
- Trade-offs: consumers must choose between different options due to limited resources
- Opportunity cost: the value of the next best alternative forgone
- Budget constraint: consumers must allocate their limited resources to meet their needs and wants
Types of scarcity:
- Absolute scarcity: a shortage of a particular resource
- Relative scarcity: a shortage of a resource relative to its demand

Opportunity cost is the value of the next best alternative forgone when a choice is made.
Opportunity cost is a key concept in understanding consumer decision making and scarcity.
Types of opportunity cost:
- Monetary opportunity cost: the direct cost of a choice, such as the price of a product
- Non-monetary opportunity cost: the indirect cost of a choice, such as time and effort
Examples of opportunity cost:
- Choosing to spend $100 on a concert ticket means giving up the opportunity to spend that $100 on a new video game
- Choosing to spend 2 hours studying means giving up the opportunity to spend that time watching a movie

Consumer decision making is a complex process involving personal, psychological, social, and economic factors.
Personal factors influencing decision making include age, income, occupation, lifestyle, and personality.
Psychological factors include motivation, perception, and learning.
Social factors include family, culture, and social status.
Economic factors include price, quality, and availability.
Rational choice model: consumers make decisions based on complete and perfect information.
Behavioral choice model: consumers make decisions based on biases, heuristics, and mental shortcuts.

Scarcity is the fundamental economic problem of unlimited wants and needs, but limited resources.
Scarcity leads to trade-offs, where consumers must choose between different options.
Opportunity cost is the value of the next best alternative forgone.
Budget constraint: consumers must allocate their limited resources to meet their needs and wants.
Absolute scarcity: a shortage of a particular resource.
Relative scarcity: a shortage of a resource relative to its demand.

Opportunity cost is the value of the next best alternative forgone when a choice is made.
Opportunity cost is a key concept in understanding consumer decision making and scarcity.
Monetary opportunity cost: the direct cost of a choice, such as the price of a product.
Non-monetary opportunity cost: the indirect cost of a choice, such as time and effort.
Examples of opportunity cost:
- Giving up a new video game to spend $100 on a concert ticket.
- Giving up watching a movie to spend 2 hours studying.

Scarcity is the fundamental economic problem of limited resources to meet unlimited wants and needs.
It is characterized by unlimited wants and needs, but limited resources (goods and services).
Scarcity necessitates choice, as individuals must allocate resources to meet their needs.
As a result, scarcity forces individuals to make choices about how to allocate resources.
This leads to trade-offs and opportunity costs.

Opportunity cost is the value of the next best alternative that is given up when a choice is made.
It is not limited to monetary costs, but also includes time, effort, and other resources.
Opportunity cost is subjective and varies from person to person.
Understanding opportunity cost is crucial in understanding consumer behavior and decision-making.
Examples of opportunity cost include:
- Giving up the opportunity to spend $100 on a new video game to spend it on a concert ticket.
- Giving up the opportunity to spend 3 hours watching a movie to spend it studying for an exam.