Consumer Economics
Chapter 3
Consumer Theories and Models
Copyright©2009 Taylor & Francis Group, an informa business
Learning Objectives
Explain different theories and models & their relevance
Describe the components of the Consumer Power Model
Explain factors that affect the model
How is consumer well-being defined and measured?
Describe the basic functions of business
Describe the nature of entrepreneurship
Introduction
A theory is an organized system of ideas or beliefs
that can be measured.
The exchange process occurs when people
negotiate with a goal of reaching an agreement.
Utility refers to the usefulness of a product,
service, or idea.
Consumer Theories
Theory of Reasoned Action – behavioral intentions are based
on a combination of attitude toward a specific behavior, the
social or normative beliefs about the behavior, and the
motivation to comply with those beliefs.
Prospect Theory – an economic theory that
explains choice under uncertainty.
Consumer Theories
Mental accounting says that people frame
or put into context their buying and
selling.
Innovation theory describes the spread of new
products and ideas through social systems by
focusing on the roles played by different types
of consumers: Innovators, Later adopters, etc.
Framework for Model Development
Exchanges - relationships between two or more parties,
such as consumers and markets.
Public Policy – government plans or decisions
Consumer Organizations – non-government and not for
profit groups
Framework for Model Development
Trade and Professional Associations – represent
companies and industries.
Environment – Every component in which the parties
make their exchange.
Regional subcultures – every country has groups within it
that differ in systematic and important ways
Framework for Model Development
Technology – part of the environment that represents the
application of scientific theories to practical problems.
Media – all forms of mass communication PLUS the
Internet
Consumer Power Model
• Focuses on transactions between consumers and
markets within all the other conditions.
• Consumption refers to using up goods and
services.
• Consumers must make many decisions
• Consumer well-being includes their financial,
health, social, and psychological situations.
Copyright©2009 Taylor & Francis Group, an informa business
Businesses and Markets
• Businesses are private or public owned
organizations that strive to make profits.
• Businesses must perform many functions, such as
production, distribution, finance, marketing, R&D,
human resource management, accounting, and
purchasing.
Copyright©2009 Taylor & Francis Group, an informa business
Chapter Summary
Theories and models are important to understanding
consumers, businesses, and the economy
The interaction of all the players can best be
understood as a dynamic system with many
interaction parts.
Consumer economics demands an understanding of
both how businesses operate and how consumers
make their decisions in an uncertain environment.