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Consumer Behaviour Essay

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Consumer Debt

Consumer debt gives reference to what consumers owe with regard to services consumed or goods bought on credit this .Business or governments debt cannot be said to fall under consumer debt. This Is debt for the sole purpose of utilization or spending rather than putting it where it will grow. It also comprises goods acquired for utilization apart from that which has been acquired in the form of property that appreciates as time lapses (Fisanick, 2010).

Consumer debt is viewed as a way to help boost domestic supply of goods and services. This is based on the ...view middle of the document...

The consumer choice theory refers to the way in which consumers can attain balance with respect to wants and money spent on goods by maximizing utility subject to consumer budget limitations (Foxall, 1983).

Before a consumer spends money on a product or service he first desires or wants it. His ability to acquire it translates into a choice .So the choice to buy something or enjoy a service will depend on your income. All this summed up are referred to consumption activities for it is this cycle that determines whether a purchase is made or not. Consumption differs from production because essentially two consumers are involved. I.e. The producer is the primary consumer e acquires goods he himself does not consume. The second is the consumer who acquires for utilization. On the premise of constrained optimization, the various models that constitute consumer theory can be used to indicate observable demand patterns for an individual buyer. (Smith, 1977)

The substitution effect states that a consumer will shy away from consuming a product as its cost increases. They would rather compromise on quality but enjoy cheaper prices. On the opposite side a consumers spending and consumption increases as income increases. This is known as the income effect and it states that as income raises consumers shift from substandard goods to better-quality goods.

Autonomous consumption

This refers to the hypothetical consumption of a person who has absolutely no income. This refers to that level of consumption independent of person’s earnings. It is hypothetically presumed that even in the absence of any income a person will still spend on food either by incurring debt or use up all their savings. The person with relatively no income will only engage in consumption of the very essential items.This refers to the opposite discretional consumption which refers to that consumption of the non essential items (Du, 1996).

When the consumption of the essential and non essential items is combining d we get the real income of the individual. The autonomous consumption plays a key role in the Keynesian model of aggregate expenditure i.e. C= a+bY. This formula shows the autonomous consumption as a , and the marginal propensity of income as b.

There are various factors that influence the autonomous consumption level for an individual these include; future income expectations, difficulty of acquiring debt, assets like houses and the minimum standards of living and ones ideas on absolute poverty. (Harrington & Bielby, 2001)

Examples of autonomous expenditure include; food, rent, water bills, electricity bills. These are some of those basic needs that even in the absence of stable income one can’t live without. For it is common logic that one must have a place to live and food to eat.

Induced Consumption

This refers to that consumption on house hold related goods and services those changes with a shift in income levels. Also...

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