Theory of Consumer Behavior

Document Type:Research Paper

Subject Area:Economics

Document 1

By exploring the theory of consumer behavior taking into account how consumers allocate their income such that they can attain maximum utility, the two principle methodologies to the theory of consumer behavior are: the Cardinalist Approach and the Ordinalist Approach. The cardinalist approach explains the desire of humans to have boundless diverse power. However, due to the scarcity of resources consumers cannot fulfill their desires hence have to prioritize on what they need most. Therefore, consumers have to make decisions based on necessity with the budgetary powers having a central role on the purchasing decisions. The basic of this approach being that a consumer seeks to purchase a product because it fulfills their desires and on grounds that it has utility for them (Duesenberry, p.

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For instance, a substance might be toxic and harmful to a consumers’ health, but because it offers fulfillment then it is considered a necessity to them. Also every consumer finds an item to be fulfilling because they use while those who do not utilize them do not purchase them. An example would be a bottle of wine is of high utility to those who consume wine while non-consumers might find it to be of zero utility. Utility maximization is a key factor in determining the factors underlying consumer decisions. This concept emphasizes on the fact that individuals are driven to purchase products that are most fulfilling to them. The two approaches: ordinalist and cardinalist also attempt to create the link between consumer behavior and the decision making process.

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