What is consumer theory?

The theory of consumer theory is the theory in economics that seeks to explain the relationship between the selection of purchase and consumer income. The idea of ​​consumer theory is that consumers will try to purchase products to give them the highest levels of benefits or pleasure for the amount of money they can afford to spend. If prices are reduced, they limit the budget, buy cheaper products if prices increase and more expensive. Likewise, they buy more expensive products if their intake increases and cheaper products if their intake decreases. Consumers make these decisions to maximize the advantage they receive in return for the money they spend. This is called budget limitation. According to consumer theory, the budget limitation will affect the decision of the expenditure consumer by limiting its decision. If the consumer can only spend the money he has, any choice that costs more. For example, when buying a refrigerator with a $ 800 budget in USD (USD) the consumer chooses the best model for Tutof an amount or less, but will not choose a model with a cost of $ 900

Furthermore, consumer theory focuses on preferences. The theory generally assumes that the consumer prefers a group of products wrapped together, commonly called a volume. The consumer will often prefer the volume regardless of the brand, instead creates a purchase decision on something, such as the number of products in the volume or volume size. For example, the consumer could prefer a bundle with extra large bottles of brand shampoo and a conditioner on a bundle of smaller bottles of B and conditioner shampoo. However, if the bottles are the same size, the consumer may not have any preference of any brand called indifference.

Consumer theory also discusses a factor called the substitution effect. This factor states that if the price of the product rises, the consumer will have to decide to buy less or replace cheaperthe product to buy the required amount. In most cases, the consumer will replace a cheaper product when it face this option. For example, if a consumer usually buys a specific coffee brand and the price rises, it probably switches to a cheaper coffee brand. Alternatively, if prices fall, the consumer may decide to buy more cheaper brands, but usually switch back to its preferred and more expensive brand.

The effect of income is another factor in consumer theory. The effect of income states that if the consumer intake increases, it will be able to buy more desired product. The consumer also migrate to replace another product that was previously too expensive for his budget.

The example of the income effect would be if a woman usually bought a certain brand of handbags, because the brand is in its budget, but really wants a more expensive brand of handbags. If its income increases, it usually switches the marks and purchases the desired and more expensive brand. On the contrary, if consumer intakeBitel reduces, usually switches to a cheaper brand.