Household Behavior and Consumer Choice Essay Example for Free

Household Behavior and Consumer Choice EssayIssues of household deportment and consumer choices, lie in the bowl of micro economics. Microeconomics, some measures called the price theory is a branch of economics that concerns itself with the study of how households, individuals, and firms make their own occult decisions on how to share scarce resources. In this research paper, I exit seek to apply economic theories and mostly the consumer theory to analyze these decisions and their beliefs on consumption, cares and wages. ANALYSIS DEFINITIONS HOUSEHOLD BEHAVIORHousehold behaviour is principally viewed and analyzed as the theory of consumer train of various commodities or generally household consumption. In admission to this household behavior also concerns itself with production of commodities or services and the supply of labor by households. Consumer demand on the other hand concerns itself with how demand functions for various commodities ar derived. This derivatio n is done ascertaining the sane choice model based on utility maximization. In this analysis, economic constraints like calculates, income and commodity prices are considered for specific households.The consumer theory studies the issue of household likes and preferences applying stolidness curves as well as budget constraints and relates these preferences to consumes demand curves. There are many economic variables that are used in the analysis of these preferences. Among the major variables, accept the price per unit of a certain mature and the money incomes of the specific consumers. A change in the price of a advanced usually has two major outcomes. Firstly, there is the substitution import and secondly there is the income effect. The substitution effect usually arises from the relative change in prices of consumer goods.On the other hand, the income effect arises from changes in the purchasing power of the available money wage or income. The diagram below depicts the human relationship between consumer demand and prices through indifference curves given budget constraints. When the price of good Y annexs, the budget line pass on shift from BC2 to BC1. This is be slip when the price of good y increases households exiting buy less of the good but they entrust still buy the alike quantity of good X as foresightful as they wish. In order to maximize his or her utility the consumer will have to move from indifference curve I2 to I1.By doing this the consumer will be able to enjoy his/her preferences as normal. Incase the price of commodity Y decreases the budget line or the budget constraint will move from BC1 to BC2. This is because the consumer will flat be able to purchase more of commodity y while at the same time enjoying the same amount of good X. in the same case, the consumer in order to maximize his/her utility will move from indifference curve I1 to I2. The same scenario will be applicable for price changes of good X. The income e ffect The income effect is depicted in the diagram below.An increase or decrease of the consumers disposable income will cause a parallel shift of the consumers budget constraint. An increase in the disposable income will cause the budget constraint to shift to the right while a decrease in the income will cause the budget constraint to shift to the left. This applies for normal goods since the indifference curves will react differently for subordinate goods and Giffen goods (goods with a snob appeal). For inferior goods as the income increases, less of the commodity will be consumed. This is because the increased income will cause the consumers to seek higher or better goods.For Giffen goods as the income, increases the amount of goods purchased may either increase or remain the same. Generally, the effects can be summed up to the substitution effect and the income effect. The substitution effect usually is a price change that affects the slope of the budget line (constraint), but leaves the consumer on the same equilibrium indifference curve. In cases where the good in question is a normal good then(prenominal) the price effect will outweigh the substitution effect, but in cases where the good is an inferior good then the substitution effect will outweigh the price effect.Leisure-labor tradeoff The time that any consumer has to allocate for different purposes is called time endowment. The price of unoccupied is analyzed using the consumer theory, with some slight adjustments. In this case, leisure is assumed to be a good and consumption is considered to be another good. Since consumers have scarce and bounded time then they will have to choose between leisure, which earns no money, and consumption of labor that earns an income. no matter of this trade off the change in the unit price of leisure will have a huge effect on the working time since a reduction or an increase in the price of labor will lead to less work and more work respectively. Wage and int erest rate Wages can be analyzed both as a cause and as effect of consumer behavior. They are a cause in the sense that as wages increase so does the consumption of households increase. On the other hand, wages can be viewed as an effect of consumption behavior since they are indirectly determined by the consumer price index. Both real and nominal interest rates are affected by consumer behaviors.Depending on the liquidity within the economy, the consumption behavior of households can cause an increase or decrease in the level of interest rates. Conclusion Many variables that are dealt with in microeconomics usually have an indirect effect in the field of macroeconomics. The determination of the national income do consider the value that households contribute either in the form of consumption or services that they render. In addition to this, the level of inflation is also slightly affected by the consumption and expenditure behaviors of the households.Consumer theory plays a very i mportant role in explaining household behaviors. However, the field of macroeconomics also needs to be keenly looked at since it deals with economic aggregates.ReferencesMankiw, N. G. (2004), Principles of economics (3rd Ed. ), Chicago, ILLIOIS Thomson South-Western McWilliams Gary. Analyzing Customers the wall street journal,Monday, November 8, 2004. Available athttp//online. wsj. com/article/SB109986994931767086. html Philip Hardwick (1982), an mental institution to Modern Economics, Longman, U. K