Question

Kym Canter, the creative director of J. Mendel, is forcing herself to take the subway instead of taxis until she has made up the cost of a diamond brooch that she was sure she'd wear every single day. As of this writing, she has worn it only a couple of times -- it isn't quite as magical pinned to the hip of her jeans as she had hoped -- and it'll be months before she can stop riding the rails.

Questions: Using the concepts and language of consumer theory, explain how Kym Canter decided to buy the diamond brooch. Did she select her optimal combination of goods?

Answer 1

Consumer Theory aims to predict the consumption behaviour of consumers and their preference for a bundle of goods that give them maximum satisfaction within their budget. Kym’s desire and maximum utility was to be achieved when she had purchased diamond brooch for which she was ready to make sacrifice her other form of comforts. Next, when she is finally able to purchase the diamond brooch, she derived maximum benefit out of it for quite some time. However, as a consumer, Kym has a nonsatiation behaviour which makes her crave to shop again and consume more. Due to this, the satisfaction she was deriving from the diamond brooch also starts diminishing. This lose of satisfaction over a period of time due to consumption of one product more and more is called decreasing marginal utility.  
Overall, there is nothing wrong with Kym’s decision but she could have opted for a product that would have give her satisfaction for a longer duration. However, as per Consumer Theory, consumers eventually lose interest on the products which increase in use and go back to shop more. This is how the demand in the market is sustained and there is always liquidity in the market.