Household Behavior and Consumer Choice Essay

Issues of star sign deportment and consumer choices, lie in the discipline of micro economicals. Microeconomics, sometimes called the set theory is a branch of economics that concerns itself with the psychoanalyze of how households, individuals, and firms make their own private decisions on how to allocate scarce resources. In this research paper, I impart seek to apply economic theories and broadly speaking the consumer theory to analyze these decisions and their effects on consumption, interests and pursues. ANALYSIS DEFINITIONS HOUSEHOLD conductHousehold behavior is principally viewed and analyzed as the theory of consumer gather up of unhomogeneous commodities or generally household consumption. In addition to this household behavior also concerns itself with production of commodities or services and the supply of exertion by households. Consumer demand on the early(a) hand concerns itself with how demand functions for various commodities argon derived. This derivatio n is done considering the rational choice model base on utility maximization. In this analysis, economic constraints like ciphers, income and commodity prices are considered for specific households.The consumer theory studies the issue of household likes and preferences applying indifference curves as salutary as compute constraints and relates these preferences to consumes demand curves. There are m some(prenominal) economic vari equals that are used in the analysis of these preferences. Among the major variables, include the price per unit of a certain ripe and the money incomes of the specific consumers. A neuter in the price of a good usually has twain major effects. Firstly, there is the interchange effect and secondly there is the income effect. The re-sentencing effect usually arises from the relative change in prices of consumer goods.On the former(a) hand, the income effect arises from changes in the purchasing power of the available money wage or income. The plo t below depicts the relationship between consumer demand and prices through and through indifference curves given cypher constraints. When the price of good Y annexs, the budget line go out shift from BC2 to BC1. This is be practise when the price of good y increases households lead taint slight of the good but they will still buy the same quantity of good X as long as they wish. In order to maximize his or her utility the consumer will eat up to move from indifference curve I2 to I1.By doing this the consumer will be able to enjoy his/her preferences as modal(prenominal). Incase the price of commodity Y decreases the budget line or the budget constraint will move from BC1 to BC2. This is be power the consumer will now 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 c hanges of good X. The income effect 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(a) 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 otherwise for inferior 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(prenominal) 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 switching effect and the income effect. The commuting effect usually is a price change that affects the slope of the budget line (constraint), but leaves the consumer on the same remainder indifference curve. In cases where the good in question is a normal good then 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 leisure is analyzed use 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 impermanent time then they will have to choose between leisure, which earns no money, and consumption of labor that earns an income.Regardless of this trade off the change in the unit price of leisure will have a colossal 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 interest rates contend can be analyzed both as a cause and as effect of consumer behavior. They are a cause in the finger 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 actual 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 a(prenominal) 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 go 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 t he households.Consumer theory plays a very important theatrical 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 Introduction to Modern Economics, Longman, U. K