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The theory and measurement of consumer behaviour forms an important, part of modem economic theory. It was first developed during the 19th century on the basis of the following conceptions: This rather crude model of consumer behaviour has undergone considerable refinement by modern mathematical economists... Critics have often objected that the model assumes a rational person bent on scrupulously maximizing his satisfaction and that the model is thus part of a mechanistic stream of thought that has been substantially undermined by 20th-century advances in psychology... Nonrational influences To be fully rational and consistent, consumers need to have access to sufficient information on goods and their prices so that they can choose those with the lowest unit price for a given quality. But consumers do not always behave this way. Natural pearls are sold at a much higher price than cultured pearls, though the difference between them is demonstrable only by dissection or with X-rays, and their quality in use is identical. Brand-name drugs sell better and at higher prices than unbranded drugs that are manufactured from the same standard formula. To some extent this is due to what an American economist, Thorstein Veblen, called the desire for conspicuous consumption: part of the attraction of the good is simply its high price. It is also the result of consumers' ignorance, made more acute by the increasing sophistication of commodities whose qualities must be measured in many dimensions. If it is costly in time for the individual to become fully informed about the comparative qualities of competing products, it is not wholly irrational for the consumer to take the market price as an indicator of quality. The lack of information has given rise to consumers' organizations in most industrialized countries; these organizations test and report on a wide range of products for their subscribers. The influence of modern advertising techniques must also be considered. Insofar as advertising informs the consumer of the range of alternatives, it can be argued that advertising merely increases the consumer's information; and insofar as advertising consciously or subconsciously changes consumer preferences, it remains one of the many factors determining consumer preferences that the economist takes as given. Advertising, however, cannot persuade the public to buy whatever the producer offers. Advertising is likely to be most effective in influencing consumers to choose one of several almost identical products being offered, such as toothpaste, cigarettes, or gasoline. But it may also raise the demand for the group of competing products as a whole. In addition, it can be argued that the total effect of modern advertising is to shift the preferences of consumers in favour of luxury goods rather than necessities, in favour of consumption rather than saving, and in favour of employment rather than leisure Role of Luxuries The historical and social role of luxury consumption is a subject of much interest... ...Adam Smith and most of the economists who succeeded him believed that if the money spent on luxurious consumption by the rich was invested in useful production, society would benefit as a whole. The Industrial Revolution brought an increasing demand for funds for productive investment and made possible a more rapid rise in general standards of living than the world had known before. The classical economists thus argued that all luxury consumption involved a selfish diversion of labour and capital and acted as a brake on human progress. This view was not seriously challenged until the English economist J.M. Keynes published his General Theory of Employment, Interest and Money in 1935-36. Writing at a time when millions of workers were unemployed, Keynes argued that the consumption of luxuries was socially desirable if it provided jobs that would otherwise not exist...
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Consumerism: What is it?