Consumer preferences

Consumer's preferences arise from the fact that he strives to satisfy his needs, among the many goods available on the market he chooses those that meet his expectations. These choices are a reflection of his tastes, preferences and personalities, they are a determinant of demand, specifying what people want to buy.

When selecting the right consumer goods, factors such as age, family status, taste, educational level, existential needs and socio-economic development have a big impact. Consumers striving for maximum satisfaction of their needs are guided by rational premises as well as standards that prevail in the social group to which they belong.

Consumers with limited financial resources must compare the usability of various goods and their combinations, and then choose the ones that will give him the greatest satisfaction. It also defines which combinations of goods are indifferent to it, which is equally useful.

The choices made by consumers not only depend on its financial capabilities, but also on desires and willingness. When deciding how to spend your money, the consumer's taste plays a significant role. Factors determining consumer behavior can be divided into internal factors of a psychological and external nature. This type of classification proposes, among others above. Viktor.

Internal factors are psychological factors that are closely related to the internal world of man. They are unique, different and individual for each unit. They are defined by personality traits.

External factors affecting a person are primarily the environment in which he lives. It is possible to mention demographic and economic, social, cultural and marketing factors. These factors shape the consumer's preferences to a large extent.

Consumption plan of each consumer can be presented schematically in the form of a vector.

$y={y1,y2,...,yn}$

where y1, y2, ..., yn - goods and services that a given consumer wants to acquire.

There may be many alternative consumption plans for a given consumer. This structure is different in individual households. The needs of a given household are influenced by factors such as :

• age
• family status
• sex
• taste
• level of education

Part of the demand results from the necessity to satisfy biological needs, also referred to as existential needs, and some of the demand for good and services depends on the socio-economic environment

When talking about the subjective attitude of persons to goods, economists use the term preferences. It is possible to appeal to the preferences of the consumer and let him show what basket of goods he considers the best.

Assumptions

Assumptions about consumer preferences :

1. The consumer can compare the basket of goods. Can tell if the combination (x1, x2) prefers over (y1, y2), or if the set (z1, z2) is as good for him as (d1, d2) and he is indifferent to which one he chooses
2. The consumer compares pairs of sets of goods in an internally consistent manner. If he selects the basket (x1, x2) to get (y1, y2), and out of (y1, y2) and (z1, z2) will (y1, y2), have (x1, x2) and (z1, z2) ) will choose (x1, x2).

In this context, we are talking about the internal consistency of choice, that is, the rationality of consumer behavior and consistent compliance with the rules by which the baskets are ordered.

1. Each basket of goods is no worse than itself
2. The consumer prefers to have more goods than less. If the consumer chooses from two baskets (x, y) and (x ', y) where X'> x then the basket (x ', y) i.e. (x', y)> (x, y) is more desirable for him. From this assumption, it appears that the consumer prefers to have more goods than less.
3. Consumer preferences are continuous (technical condition).

Axioms of theory Hal R. Varian believes that some assumptions about preferences are so fundamental that they can be treated as axioms of consumer theory. These are:

• completeness - we assume that two baskets can be comparable
• maneuverability - we assume that each basket is at least as good as it is
• transitivity - that is, if the consumer thinks that basket X is at least as good as Y, and Y at least as good as Z, then he also thinks that X is at least as good as Z.

Utility

In the second half of the nineteenth century, neoclassical economists created the basis of consumer choice theory based on the concept of usability. Usability is the sum of satisfaction (satisfaction) that a consumer derives from his goods. The consumer's goal is to obtain maximum utility from the consumption of the selected good.

Maximum utility

All households strive to achieve the greatest total usefulness.

The law of decreasing marginal utility

The usefulness that households achieve in consumption of goods decreases as more units of the good are consumed.

Indifference curve of the consumer

It is also called the curve of the same usability. It presents all combinations of two goods, equally desirable by the consumer. Consumers wanting to increase the consumption of one good must reduce the consumption of the other good.

Consumer preferences — recommended articles

Neoclassical economics — Homo economicus — David Ricardo — Consumer decision making process — Engel's law — Adaptive expectations — Motivation theory — Vilfredo Pareto — Factors influencing consumer behaviour

References

• Yang, S., & Allenby, G. M. (2003). Modeling interdependent consumer preferences. Journal of Marketing Research, 40(3), 282-294.
• Dynan, K. E. (2000). Habit formation in consumer preferences: Evidence from panel data. American Economic Review, 90(3), 391-406.
• Loureiro, M. L., McCluskey, J. J., & Mittelhammer, R. C. (2001). Assessing consumer preferences for organic, eco-labeled, and regular apples. Journal of agricultural and resource economics, 404-416.