1. Consumption and Consumer Society
Lecture 8
Consumption and Consumer Society

2. Consumer behavior: The marketing view
Why do consumers want what they want? Why do they buy what they buy?
The degree to which we perceive a need may be related to two factors:
Our own past experience
Experience of groups to which we compare ourselves (reference points/groups)

3. Consumer behavior: The utility theory view
This view portrays consumer behavior as relatively simple, rational, untouched by social influences
It focuses on behavior that individual consumers would logically pursue, given certain assumptions
Question: How should consumers rationally allocate their limited budget to various goods and services they want?
Assumptions:
Marginal thinking is possible
People are rational, autonomous decision makers
All benefits from consumption choices can be compared and summed up
Consumer’ preferences can be taken as given
Consumers have perfect information
There no externalities in consumption
There are no multliple equilibria, no non-convexities

4. Utility theory: Budget line

5. Utility theory: Budget line

6. Utility theory: Utility function
The pleasure or satisfaction from goods, services, or events
Utility function (or total utility curve)
A curve showing the relation of utility levels to consumption levels

7. Utility theory

8. A formal theory of consumer behavior
Assumptions:
The only consumer is the household (HH)
The HH has clearly defined preferences over all the goods it might consume
The HH wants to have the consumption bundle which maximizes utility (sum of its satisfactions)
The HH (or the consumer) is well-informed, autonomous and rational
The HH considers only its own preferences, budget, and prices
For simplification, here, we look at two goods only, X and Y

9. A formal theory of consumer behavior

10. A formal theory of consumer behavior
Indifference curve:
A curve consisting of points representing
combinations of various quantities of
two goods, such that every such combination
gives the consumer the same level of utility
Marginal rate of substitution:
How much of one good the
consumer is willing to give up
to get more of another

11. A formal theory of consumer behavior
Different levels of utility

12. A formal theory of consumer behavior
Utility maximization

13. A formal theory of consumer behavior
Response to a price change

14. Consumer society Consumerist values:
The belief that meaning and satisfaction in life are to be found through the purchase and use of consumer goods
Institutions of consumer society:
Advertising
Consumer credit
Credit cards

15. Consumer society Advertising
Usually justified as a source of information about products and services available in the marketplace
But also: it promotes the idea that purchasing things, in itself, is a pleasurable activity
Some figures:
In 2004, advertising spending in the U.S. was estimated to be over $ 263 billion.
This was larger than the GDP of countries such as Denmark and Saudi Arabia.
By the mid-1990s, the average American adult was exposed to about 3000 ads every day.

16. Consumer society Does more consumption make people happier?
At a given point in time, people with more to spend generally report themselves as somewhat more satisfied with their lives than do people with less to spend
Over time, however, more consumption does not seem to be related to more happiness in affluent societies
In 1957, 35% of respondents in a U.S. survey said they were «very happy»
In 1998, 32% said that they are «very happy» despite the fact that the purchasing power of an average U.S. citizen doubled

17. Consumer society A study in 1995 in the U.S.:
1/3 of all respondents in households with income between $ $ agreed that «I cannot afford to buy everything I really need» and «I spend nearly all of my money on the basic necessities of life»
27% of those with incomes above $ agreed that they «cannot afford to buy everything I really need»

18. Life Satisfaction Index
Source: OECD Better Life Index