Question

In 250 words or more, describe the theory of consumer choice and describe your perspective on it. Does the theory represent your thoughts and processes when it comes to the choices that you make at the store?

Answer 1

Consumer Choice Theory is a hypothesis about why people buy things. It says that individuals choose to buy things that give them greater satisfaction, while keeping with their budget. It is a branch of microeconomics, that shows how individuals make choices, given the restrains, such as their income and prices of goods and services. The theory functions upon three assumptions about human nature.

• The first assumption is that when you shop, you choose to buy things bases on calculated decisions about what will make you happiest. This is known as the utility maximisation.
• Secondly, the theory assumes that no matter how much you shop, you will never be completely satisfied. This is inn par with the principle of non-satiation which says that a consumer will always be happier in consuming a little bit more.
• Thirdly, even though you always get happiness from more consumption, the amount of pleasure you get from one good decreases with the more you consume, which is another economic concept of Diminishing Marginal utility.

The theory indeed does predict human behaviour while shopping. It influences the choices that I make at the store. Suppose, I am having $300 (this is my budget constraint), now I have to allocate my funds between hamburger and Coke. Suppose that Hamburger costs $ 10 and Coke costs $ 50. I can purchase any combination of hamburger and coke that costs no more than $300. So, this theory can help me with selecting an optimum combination that would satisfy me or in economic sense, maximise my utility. But, I believe that this theory has been applied correctly till the monetary aspect. Of course, I won’t be able to purchase more of a commodity if I run out of cash. Let’s not forget that reality is more complex. So, the theory does suffer from a set of limitations.

• People aren’t always rational, occasionally they are indifferent to the choices available.
• Some decisions are particularly difficult to take, because consumers may not be familiar with the products, or the decision may have a certain emotional component. Thus, consumer theory makes a lot of assumptions to simplify the process.
• People can be reluctant to spend cash on certain types of goods because they set preconceived limits on how much to spend on ‘luxuries’.
• The consumer choice theory is less about describing how we do actually behave, and is more about describing how we actually should behave.

Thus, on a few instances the theory may really describe my thought process while shopping but again many a times it happens that I don’t take decisions rationally. Human beings are complex to understand. A theory cannot limit the decision- making ability of an individual. Thus, every coin has two sides and so does this theory.