Consumer behaviour

Abstract This paper critically focuses on Consumer Decision-making Process models of purchase and post-purchase in relation to the hospitality industry. The paper shall determine the extent these models are vague and all-encompassing, especially when applying to postmodern hospitality industry with the fragmented nature of consumer behaviour, and emerging trends in the global provision of products and services.Advertising We will write a custom essay sample on Consumer behaviour specifically for you for only $16.05 $11/page Learn More Scholars interested in the field of consumer behaviours have developed several models as attempts to explain consumers’ decision-making processes when making a purchase, and what follows after the purchase. Gordon and Saunders have identified six of such stages that involve passive and active consumption phases or sequences (Foxall, 2004). They identify these stages as emerging needs, active consideration, researchin g, short-listing, purchase and post-purchase. Smith also supports these stages in his work. A part from these scholars, other scholars have also offered different perspectives on consumer decision-making process (Kotler, Bowen and Makens, 1999; Chambers, Richard and Lewis, Robert, 2000; Onkvisit and Shaw, 1994; Howard and Sheth, 1996). However, critics argue that such models are vague and tend to be all-encompassing. Introduction Gabbott and Hogg offer a brief definition of consumer behaviour as â€Å"any behaviour involved in the course of buying, using and disposing of products† (Gabbott and Hogg, 1998). Critics have noted that this definition is vague and not practical. From this definition, we can learn that consumer behaviour is a technical issue to describe precisely. Engel, Blackwell, and Miniard have offered an advance definition of consumer behaviour as â€Å"activities which directly involve decision processes prior and after stages of obtaining, consuming and disp osing products† (Blackwell Engel and Miniard, 2001). They further explain how consumers choose products and services using a model of Consumer Decision-making Process (CDP). This model indicates how consumers make decisions before undertaking any purchase decision and post-purchase decision. Consumers make their purchase at the fourth stage after undergoing all other previous stages.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Consumers look at the value of the products or service they have purchased against the satisfaction derived or fulfilled from using the product. This experience is fundamental for defining the fifth stage, post-purchase evaluation, which takes a mental evaluation of the value of the purchase. We have noted that depending on the CDP model alone may not provide the necessary information when applied in a marketing environment. This is because there are other v arious factors that influence every process of CDP. Understanding factors that influence stages of CDP model may help markets persuade consumers who intend to use their products or competitors. Consumers are likely to purchase services or products that have solved their problems in cases of recurring needs. This is a purchase they know. The CDP model must recognise that factors such as culture, personal preferences, social status, family, and the situation also influence consumers’ purchasing behaviours. At the individual level, we have attitude, resources, motivation, personality, and knowledge. For instance, we may consider how consumers who are conscious environmental behaviour towards purchasing green products or services in the hospitality industry. Characteristics of products and services in the hospitality industry Hospitality industry mainly caters for tourists or visitors have that need a unique range of services and products. We can group these services and products as packages e.g. accommodation and meals, or stand-alone products such as catering, and entertainment, among others. We shall focus on a combination of services and products at the hospitality industry so as to enable us to understand the consumer decision-making processes when making such purchases.Advertising We will write a custom essay sample on Consumer behaviour specifically for you for only $16.05 $11/page Learn More This sector largely deals in provisions of services. According to marketing studies and theorists, services are intangible purchases. Thus, such purchases never really result into any ownership. In this regard, they offer various characteristics of services as follows. The hospitality industry offer services that are intangible. We can never touch, see, taste, or even smell them before we make the purchase. Marketers in the field of hospitality offer images of their services, such as accommodation locations and the surrounding envir onment to make such services appear real to the consumer. This is a means of overcoming intangibility. However, such techniques do not necessarily overcome intangible characteristics of such services as tourists have to care when purchasing such services in the hospitality industry. Services in the hospitality industry also have inseparability characteristics between production and how the service works during consumption. This characteristic influences consumer’s purchasing behaviour. Consumers may link the service to the provider together with the performance, and change their purchasing pattern if the services do not meet their expectations. Services also tend to be heterogeneous in nature. This means services providers at the hospitality industry may find it difficult to offer the same service to every consumer when their needs arise. Different aspects like emotional status of the customer may also affect how he or she perceives the service at a certain time. It means tha t consumers of hospitality products and services may not be able to predict the quality of services they may receive at their favourite places. In addition, consumers cannot depend on past their experiences in order to make subsequent purchase decisions regarding the same services or products. There may be inherent changes in the services, service providers, or the consumers themselves that may affect the quality as well as experience of services offered. Services also lack ownership, at least to the consumer. Consumers only experience the service through their purchases and access. Consumers will not own the service. Thus, services serve the purpose of a need satisfaction rather than tangible ownership. Therefore, purchases of services will have significant effects on emotional aspects of the consumer.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The above characteristics are just some of the aspects that may influence consumers of the hospitality industry. Marketing pundits also look at the distinction between convenience goods and shopping goods. Convenience goods tend to have low prices and high frequencies of purchases, unlike other goods that have high prices with low frequencies of purchases. In this regard, we look at shopping goods as serving higher-order needs according to Maslow’s hierarchy of needs. Howard and Sheth note â€Å"the purchase of convenience-type goods involves the consumer in a routine problem-solving behaviour, whereas the purchase of shopping goods involves the consumer in an extensive problem-solving behaviour† (Howard and Sheth, 1996). We can note that consumers will spend a lot of time in order to understand complex issues of services they are about to purchase in the hospitality industry. The acts of choosing tourism destinations and subsequent service providers involve high-level purchases that require consumers to search for information and make informed purchases. It requires a high-level of commitment, time, and significant spending. Thus, Middleton and Clarke observe that such influences result into low brand loyalty and expectations of repeat purchases, and low chain of distribution (Middleton and Clarke, 2001). Complexity in Consumer Behaviour in the Hospitality Industry Consumers involved in purchasing hospitality products and services usually experience some technical issues. Most products and services in the hospitality industry need a high degree of involvement in making purchase decisions and a high degree of consumer commitment. This is due to the nature of products and services that consumers wish to purchase. Thus, there are no routine or similar behaviour patterns when making such decisions. Consumers consider every purchase unique and need different approaches in making purchase decisions. Consumers in the hospitality industry must first car ry out a thorough marketing research before settling on a given decision. In turn, decision-making processes tend to take longer than when purchasing other products or services. Factors that may influence consumers at this stage may also set in, such as a holiday destination, type of holiday, individual preferences and among other factors. Consumers link intangible services and products to high levels of insecurity in the purchasing process. The challenge is that consumers cannot have a test of the product before they make any purchase. In this case, most consumers only rely on the assurances from the services or products vendors. The level of insecurity involved results into complex behaviour patterns where consumers collect information from several sources, including agencies. Information may come from the family, advertisement, travel agents, companies’ Web sites, and social media, among others. Holidays and visits are significant events in an individual’s life. Thu s, there is a considerable level of emotions involved. Holidays restore physical health and provide a chance of escaping the routine of workplaces. Holidays are expensive. This implies that the decision to take a holiday may affect other members of the family, or colleagues in cases of where companies cater for such packages. This calls for compromises at some points, especially with regard to a holiday destination. There may also be some pressing needs such as purchasing new items, car, improving a home. Thus, family members or colleagues may consider such an expensive holiday a waste of resources. Consumers who wish to purchase hospitality products and services normally experience strong influences from other people such as family members, colleagues and reference groups. The study of behaviour patterns that are under influences from diverse aspects is extremely difficult. At the same time, such opinion leaders also have tendencies of changing their beliefs and opinions over time. Most decisions consumers make about visits are long-term decisions that take a considerable amount of time to plan. The challenge is that people may be at different statuses of their minds when they plan their visits, and when they actually go for such visits. Such decisions depend on aspects of the future that they might not be able to predict. The dynamic nature of the tourism industry may affect such decisions depending on the cost variations, climate changes and lately security. Purchases made in the hospitality industry involve high levels of search for information. Factors such as emotions and individual preferences may determine the extent to which a consumer will seek for such information. There is a wide consultation of different sources of information, and the final choice depends on such information gathered. There is a high level of complexity involved as people search for information and make decisions. It may also mean that decisions can change abruptly depending on t he new information discovered. The complex nature of making purchase decision-making processes in a hospitality industry is different from making purchases of other routinely used goods. The intangible nature, uncertainty of the future and unpredictable of service standards make the process of purchasing services and products a complex experience for consumers. This implies that marketers in may have difficulties when promoting their services and products to such consumers. The decision-making process in the hospitality industry The decisions consumers make to buy products and services in the hospitality industry are due to complex processes involved. These factors relate to the consumer, and other external factors that he or she may not be able to control when making a decision of purchasing a service or product without prior experience. In addition, the nature of products and services in the hospitality industry also make purchase decision-making process a complex affair. For inst ance, in choosing a holiday destination, consumers consider such factors as the destinations itself, mode of travel, type of accommodation services, the length of the holiday period, the time of the holiday, package of the holiday, and agent to provide tour services. These are among many factors that may influence the decision-making process of a consumer when choosing a holiday package and subsequent purchase. We can note that the scope and number of such factors are wide and numerous. We also realise that choosing the destination alone is not enough and not an end in itself. There are issues and activities to engage in once in a holiday destination. Visitors will also make further decisions regarding how to spend their time, what meals to take, and where to take them among others. We can notice that these decisions look simple. However, they form part of the complex decision-making processes that tourists must critically look before making any purchases. Decision-making models in hospitality Cooper and associates provide three processes in the development of consumer behaviour with reference to purchase processes (Cooper et al, 2005). First, there was the early phase of 1930 and 1940s (early empiricist) where emphasis was on empirical research. Still, the industry tried to establish effects of advertising, product distribution, and promotion decisions. Second, there was the motivational phase in the 1950s where attention focused on â€Å"focus groups, in-depth interviews and consumers’ perception studies, and other projective approaches† (Cooper et al., 2005). The focus was on what factors motivate consumers to make their purchases. Third, there was the formative phase. This phase included published textbooks by consumer behaviour theorists such as Engel, Blackwell, Kollat, Howard and Sheth. Most early approaches on the study of consumer behaviour â€Å"focused on manufacturing industries, and they later moved to general service industriesâ₠¬  (Cooper et al, 2005). In the 1970s, scholars began creating purchase models in the area of tourism. These models presented linear representations of decision-making processes. It was Moutinho who developed a tourist behaviour model that was different from the rest with two scopes (Moutinho, 1987). First, the model provided for three distinct stages in the consumer decision-making process. These were â€Å"pre-decision stage and decision process, post-purchase evaluation, and future decision-making† (Moutinho, 1987). The model also provided opportunities for feedback mechanism. Second, the model recognised three behavioural aspects in making purchase decisions, such as motivation, cognition, and learning. The Consumer Information Processing Model: Source: Adopted from Kotler (1997) Post-purchase Evaluation Post-purchase evaluation occurs as a result of purchase decision. In this context, the consumer considers the level of purchase involvement. As we have identified above , purchases in the area of hospitality are high levels involvement. In other words, the level of concern for the purchase is high in the hospitality industry because such decisions are not habitual purchases. The process is a continuum where the flow is from low to high level (Solomon, 2006). High level of involvement during purchase decision-making process will result into an extensive post-purchase evaluation. Consumers usually question if their decisions to make purchases were the best among other alternatives. This is what we call post-purchase cognitive dissonance. Elaborate Post-purchase Evaluation: Source: Adopted from Hawkins, Best, and Coney (1983) Consumers are likely to experience such dissonance if the purchase is irrevocable, involves a high level of commitment, individual factors, selection among alternatives, and the importance of the decision. Post-purchase experience of dissonance makes the consumer feel uncomfortable. Consequently, they resort to a number of ways to reduce such feelings. These may include preferences for the choice, disregard other alternatives, avoid negative comments about the choice, and reduce the importance of purchase decision. Consumers who fail to reduce the level of dissonance may experience dissatisfaction with their choices. In this process, the consumer is likely to identify new problems and engage in the process of satisfying the need created due to dissatisfaction by the initial purchase. Consumers will use their experiences and negative feeling like part of the new information in making the decision for the next purchase. Analysis of the purchase decision models There are inherent weaknesses that exist in consumer decision-making process models. These models do not explicitly show how consumers undergo complex processes when making decisions of purchasing services in the hospitality industry. These models cannot serve marketers when designing their marketing strategies. Most critics argue that such models do n ot rely on any empirical research; thus, may not present reality of how consumers make their purchase decisions. In addition, most of these models are out-of-date in the postmodern hospitality industry, which is ever dynamic as consumers’ preferences are not static. For instance, the tourism and hospitality industry has experienced changes with regard to the rapid changes in the Internet as a means of booking and purchasing hospitality packages and airline tickets, explosion of no-frills budget airlines, the development of all-encompassing holiday destinations, evolution of direct marketing, and changes in the buying behaviours of tourists that involve last-minute and spontaneous purchase decisions. Third, a number of models that exist in the field of tourism, hospitality, and event management have their origins in North America, Northern Europe, and Australia. This implies that these models do not cater exhaustively cater for emerging markets in Eastern Europe, South America , Asian and African markets. These models also tend to classify activities in the hospitality industry as homogeneous. However, consumers of such products are different and unique in their own ways. Some of these factors that may influence characteristics of visitors may include their travelling patterns i.e. as an individual, family or group, past experiences of such tourists, and personal traits, which may involve planning patterns such as last-minute decisions or considerable amount of time for planning. A number of models do not account for influences of motivators and determinants that affect consumers during decision-making processes. Some factors that influence consumers’ decision-making processes may dominate other factors and account for the entire decision-making process. However, such factors mainly depend on individuals’ preferences such as hobbies, means of travelling, or preferences for leisure activities, among others. Other models take rational approach es to decision-making processes in purchases, which is not always the case. The ability to make rational decisions in purchasing among visitors depends on the availability of information. In most cases, tourists may have access to imperfect information that does not give true accounts of their alternatives. In addition, rationality of the purchase decision-making process also depends on an individual’s factors such as personal opinions and prejudice. These models assume that consumers’ activities and purchase patterns are constant. They fail to account for emerging trends such as conference tourism, holiday destinations, holiday patterns, effects of globalisation and instant decision-making process among some visitors. Such factors influence the nature of the decision and purchase patterns among consumers. Postmodern consumers of hospitality industry Studies show that purchases and consumption in the hospitality industry have become fragmented. The perceived social rol es have experienced â€Å"breakdown and left majority to adopt any identity they want in a postmodern society† (Thomas, 1997). In the field of hospitality, the postmodern consumption rotates around â€Å"changes in consumer cultures of the late capitalism and the emergence of communication technology† (Brown, 1995). These changes have affected marketing trends in hospitality services (Williams, 2002). Thomas notes postmodernism has significantly influenced marketing. Thus, he elaborates â€Å"Marketing, real-time, real-world marketing is thoroughly postmodern because postmodern marketing openly challenges some of the major axioms of the conventional wisdom as reflected in the standard marketing textbooks† (Thomas, 1997). Thomas lists axioms that relate to postmodern as â€Å"consumer needs, consumer sovereignty, behavioural consistency, customer orientation perceived value, product image, buyer and seller separation, individual and organisation distinction, pro duct and process separation, and consumption and production division† (Thomas, 1997). We can relate these elements to consumption in the hospitality industry and establish consumerism in postmodern. According to postmodernism, there is no single privileged form of knowledge, i.e. no theories are superior or inferior to others. Thus, it is no longer possible to believe in a generalisation or meta-discourse. A better understanding of postmodernism should entail sensitivity to differences, fragmented individuality, embrace uncertainty, and discourage the use of consensus to suppress heterogeneity. In the field of hospitality consumption, we must embrace parallel and emerging trends in the social world. This refers to both self and other spheres of life. Postmodernism recognises that there is a lack of unity, lack of unifying central ideas, order, and lack of coherence. Lack of certainty applies to an individual as well as the whole system. Therefore, the fragmented nature of cons umer decision-making process models results from the fact that postmodernism does not recognise coherent and unified approach to issues as there is also general lack of certainty. There is also breakdown in the system that leads to distinctions and differences. In turn, we have fragmentation in processes that replace unity or totality. Changes in society will allow for conditions of postmodernism characterised by hyperreality, ambiguity and reproduction of features (Gabriel and Lang, 1995). Thus, postmodernism does not support any suggestions to replace or impose order to the existing chaotic and fragmented reality. Postmodernism puts it that we should embrace the â€Å"limitations of knowledge, question the value of generalisations and accept the impossibility of universal truths† (Thomas, 1997). Fragmentation also emerges due to a low level of commitment to any one brand. What exists is only a momentary attachment, brand repositioning, and regeneration. Thus, if we apply th e principle of none is superior or inferior to another, then marketing becomes only sensible when it recognises language, symbols and elements of communication that imply and signify essential images in marketing. In the hospitality, the breakdown in the system affects marketing in the hospitality industry, which relates to the universal principle of marketing (Williams, 2002). Postmodernism tends to question ideas behind generalisations and concepts in overarching theories as it sees them as limited in scopes. Thus, it posits that marketing approaches tend to impose order on the chaotic and fragmented statuses of the modern hospitality industry. Postmodernism argues that there that the knowledge that exists has limitations about the nature of fragmentation. There is little empirical evidence to support generalisations regarding consumers’ consumption and behaviour patterns. In addition, consumers’ consumption trends are not orderly and unpredictable. Consumers act on their wishes, ignore the set standards, and fail to maintain systems that may guide their activities (Brown, 1995). Thus, consumers are unreliable and changeable. Dynamic characteristics of modern consumers in the hospitality industry present difficulties in predicting buying behaviours and decision-making processes. Conclusions This research has looked at the purchase and post-purchase models in consumption of hospitality services. Academicians and market theorists have made their inputs in order to provide theoretical account of the processes. However, these models offered by theorists have inherent weaknesses both in describing and explaining how consumers make their purchase decisions. Some of these weaknesses result from elaborate decision-making patterns involved in choosing a holiday destination and subsequent activities. The consumer decision-making process in purchasing hospitality services is a complex affair. It depends on a number of factors that originate from an indivi dual and other external factors. However, the models present linear processes that do not account for the complex nature and a high level of decision-making process consumers undergo when choosing a holiday destination. Despite these theories and models, understanding consumer behaviour in consumption of hospitality services remains complex. The post-purchase evaluation occurs as a result of the decision to purchase. It is also a high-level involvement process due to the nature of the decision and purchase involved. Consumers will experience post-purchase cognitive dissonance due to their purchases. However, in most cases, they tend to find ways of reducing negative feeling about their purchases. With reference to postmodernism, consumption of hospitality services remain unpredictable, fragmented and not attached to reality. Postmodernism believes that consumers of today live in a world of doubt, ambiguity, and uncertainty. Thus, applying a model to explain their decision-making pro cesses involving a purchase remains difficult to limitation of knowledge. To this end, we cannot apply generalisations to account for behaviours of consumers in the hospitality industry. Still, marketing remains a complex process as predicting purchasing patterns and consumptions among customers are also difficult. Most consumers will base their purchase decisions on their wishes, make last-minute decisions, and create new trends in demand for services and products. Such are the difficulties that make these theories fragmented and all-encompassing. Reference List Blackwell, R, Engel, J and Miniard, P 2001, Consumer Behaviour, 9th edn, Harcourt Education, Boston, MA. Brown, S 1995, Postmodern Marketing, Routledge, London. Chambers, R and Lewis, R 2000, Marketing leadership in hospitality: foundations practices, 3rd edn, John Wiley Sons, New York. Cooper, C, Wanhill, S, Fletcher, J, Gilbert, D, Fyall, A. 2005. Tourism: Principles and Practice, Pearson, New York. Foxall, G 2004, Con sumer Behaviour Analysis V1, Routledge, New York. Gabbott, M and Hogg, G 1998, Consumers and Services, Wiley, New York. Gabriel, Y and Lang, T 1995, The Unmanageable Consumer, Sage, London. Howard, J and Sheth, J 1996, The Theory of Buyer Behaviour, John Wiley, New York. Kotler, P, Bowen, J and Makens, J 1999, Marketing for Hospitality and Tourism, Prentice-Hall, New York. Middleton, V and Clarke, J 2001, Marketing in Travel and Tourism, Butterworth-Heinemann, London. Moutinho, L 1987, ‘Consumer Behavior in Tourism’, European Journal of Marketing, vol. 21, no. 10, pp. 3-44. Onkvisit, S and Shaw J 1994, Consumer Behavior: Strategy and Analysis, Macmillan College Pub-lishing Company Inc, New York. Solomon, M 2006, Consumer Behavior, Prentice Hall Europe, New Jersey. Thomas, M 1997, ‘Consumer market research: does it have validity? Some postmodern thoughts’, Marketing Intelligence Planning, vol. 15, no. 2, pp. 54–59. Williams, A 2002, Understanding the Hospitality Consumer- Hospitality, Leisure and Tourism, Butterworth-Heinemann Ltd, London. This essay on Consumer behaviour was written and submitted by user Kaeden Rhodes to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here. Consumer behaviour Introduction Consumer behaviour is the general function of a customer’s preference and taste as well as the resultant utility. Consumers have variant perceptions of the satisfaction they expect to derive from a certain good or service which comprises their taste. On the other hand, a consumer has a certain degree of bias towards a given product given a choice between two which comprises their presence.Advertising We will write a custom essay sample on Consumer behaviour specifically for you for only $16.05 $11/page Learn More These two aspects influence the level of utility the consumer derives from utilization and consumption of the product in question (Frank and Bernanke 2001, p12). However, a consumer’s preference and taste is constrained by variety of factors such as operating income, government restriction as to the allowed purchase quantity as well as the type of products. In effect, a consumer will spend their money on a bundle of go ods that offer the maximum amount of satisfaction. Their choice of such bundles is therefore influenced by their tastes and preferences. 1. According to the neoclassical utility model as proposed by Mahoney (2001) in the case of two income goods x and z the consumer given a choice between the two products that are not substitutes the consumer has a certain preference for good x over good z presenting three options as follows : x as preferred to z z as preferred to x z and x equally preferred or indifferent These options can be represented as follows Curve x represents a consumers preference for good x over z. Curve z represents a consumers preference for good z over x. P1 represents policy 1 which presents the consumer with a voucher that can be exchanged for a fixed amount of good x.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Line P2 represents a policy that presents the consumer w ith an income supplement sufficient to buy the same amount of good x assuming that every supermarket has the same price for good x (Witt 2001a, p. 1-5). At point O Under these two policies households’ preferences over the two goods will always have exactly the same impacts on the household in terms of its utility level and consumption levels of the two goods as illustrated by the diagram above. At point O a consumer who has a higher preference for good x over good z under policy 1 as illustrated by curve (x,x) would ordinarily consume a bundle of quantity (x1,z1) having exchanged the voucher offered by the first policy however they can now consume for (x2) amount of good x after trading in the voucher for a fixed amount of good x which is the difference between (x1) and (x2). A household which on the other hand has a higher preference for good (z) as opposed to (x) will consume (x2) amount of good (x) which is the equivalent of the (z2) amount of good z that they ordinarily a re willing to consume as offered by the second policy. In effect as long as the voucher offered by policy one is equal in quantity terms to the difference between the two curves representing the household differences in preferences the two policies will give similar results (Witt 2001b, p. 23-36). 2. Under certain house hold preferences the two households will have potentially different impacts on the households in terms of its utility and level of consumption. These circumstances are as follows. If the goods are perfect substitutes The preference curve for perfect substitutes is as followsAdvertising We will write a custom essay sample on Consumer behaviour specifically for you for only $16.05 $11/page Learn More The households will willingly exchange one good for the other despite their preference therefore there will be a rather rigid manner in which they utilize the commodity in regards to quantity and utility. Therefore an implementation of eith er of the policies will always result to different results. If the goods are perfect complements Aconsumer may have their own preference for either good however perfect complements vary and restrict such preferences to ensure that each quantity of one good acquired is acquired with an equal or similar quantity for proper enjoyment of either of the goods. Therefore, implementation of one both or either of the policies will lead to entirely different results. The utility preference and consumption curve will be as follows : If the household acquires a unit of good x the household it ensures that it derives as much utility from it as one unit of good z and does the same for two units of good x this ensures a consistent difference in the overall utilisation and use of the goods. In effect implementation of either policy will always lead to different modes of consumption therefore different levels of utility (Nevo 2003). In case the products are imperfect substitutes If a consumer p erceives a product to be an imperfect substitute of the other they have different levels of preference and utility for either product. It would not be possible therefore to equate the two goods in regards to consumption and preference. Therefore each product will have a different indifference curve. Application of either policy will lead to different results arising from the lack of similarity. 3. The two policies cannot be substituted because the first policy does not vary with the earnings and preference of the household but rather offers a rigid biased offer for a fixed quantity of good x while the second policy is a flexible policy that varies with the needs and capacities of households.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The approach taken by policy one limits the consumer’s choice in the amount of good x they consume. The consumer will always take advantage of a subsidy and they will therefore have little choice in the minimum amount of good x they will acquire. The second policy on the other hand increases the maximum amount of good x the consumer is willing and able to consume. It increases the upper limit buy matching the subsidy with the consumers actual spending. This therefore maintains their choice but influences their capacity. 4. Utility as a function of preferences defines how much pleasure the consumer derives from a certain good or product. The rate at which a household consumes a certain good depends to a great extent on the satisfaction they anticipate from the good. This further has a bearing on the amount of a given product they are willing to consume. On the other hand the consumers wilingliness to consume a product will however be curtailed their cost budget therefore limit ing the amount they actually purchase of a given product (Bianchi 2002). Therefore, the amount of a certain product that a household consumes is a function of their budget constrains as well as their tastes and preference or rather the utility they receive from the good. The utility function represents the relationship between utility measures and the possible combination of goods as shown by the diagram below. As such the utility derived from a given bundle of goods by a household increases at a decreasing rate. Therefore the more of a certain commodity the household consumes the lesser utility they derive from it. The two policies aim at increasing the amount of a certain good that the consumer purchases. They will however not always achieve utility since the more the household consumes the lesser utility they derive. The total utility derived from consumption of the specific bundle of goods reduces as the consumer gets used to large amounts of the goods therefore reducing the sa tisfaction. There are however alternative ways of increasing the utility as well as the consumption of these goods. This can be achieved through a product subsidy to reduce the price of the commodity. According to Nicholson (2002) a characteristic of preference is that more is always good. A household is ready to settle for more of the cheaper product as opposed to lesser of another product for the same amount of money. A reduction in the price of product x changes the slope of the budget constraint holding the income constant as represented by the diagrams below If the price of good x is 10 dollars, a unit the consumer who has a constrained budget of 400 dollars can only buy 40 units of good x. The household looks for the bundle that gives the best utility within the budget line. The consumers’ willingness to consume is limited by their anticipation of spending and their limits in budget. This however can be changed by the reduction in the prices of the product. With a prod uct subsidy that reduces the price, the budget line slope changes to adjust to the new price. If for instance the price for good x reduces to 8 dollars a unit the budget line changes and the consumer thanks to the price subsidy of 2 dollars per unit can acquire more units of good x he can now consume up to 50 units of the good with the same budget constraints as follows. A consumer will be more willing to purchase additional units of good x at the same level of preference due to the reduction in price. This also has an implication on the utility derived from the consumption of the goods. The firm will minimise its costs by reducing its labour usage where the average product of labour is increasing. Since the marginal product is greater than the average product of labour in the short run the firm will minimise its costs when the marginal cost of labour and capital are equal to the average product. In the long run however the marginal product diminishes and the input combination tha t supports the least cost is where the marginal product for labour and capital is zero or where the average product of labour and capital are greater than the marginal product of labour and capital (Perloff 2012). The firm will reap benefits in the long run since the marginal cost of production which is the additional cost of producing an extra unit of a given product is lower than the average product hence attracting the economies of scale (Perloff 2012). The firm will incur lesser cost per unit in manufacturing additional units of the good due to the benefits of scale. References Bianchi, M 2002, Novelty, Preferences, and Fashion: When Goods Are Unsettling’, Journal of Economic Behavior and Organization, Vol 47 no 1, pp. 1-18. Frank, R., and Bernanke, B 2001, Principles of Economics. McGraw-Hill Irwin, Boston Mahoney, D 2001, On the Representation Theorems of Neoclassical Utility Theory: A Comment, Web. Nevo, A 2003, ‘New Products, Quality Changes, and Welfare Measur es Computed from Estimated Demand Systems’, Review of Economics and Statistics, Vol 85 no 2, pp. 266-75 Nicholson, W 2002, Microeconomic Theory: Basic Principles and Extensions, South Western College Publishing, Ohio Perloff, J 2012, Microeconomics global economics global edition (6th edn), Pearson education, New York Witt, U 2001a, ‘Economic Growth- What Happens on the Demand Side?’ Journal of Evolutionary Economics, vol 2 no. 2, pp. 11: 1-5. Witt, U 2001b, ‘Learning to Consume—A Theory of Wants and the Growth of Demand’, Journal of Evolutionary Economics, Vol 11 no. 1, pp. 23-36. This essay on Consumer behaviour was written and submitted by user Alexzander W. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.