5: Consumer Theory and Models
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Consumer sovereignty helps explain the breadth of production and marketing activities observed in the economy. To illustrate, consider children’s breakfast cereals. Lots of money is spent on the packaging and promotion of these products. Even if it can be assumed that these cereals are good for children, a critic might argue that everyone would be better off if an entity was set up to simply take flour from oats, rice, corn, or wheat; add sugar and a binding agent; pellet it; and distribute it to families with children. Children would get the same nutrition regardless of whether there was a friendly looking pirate on the box and a cheap toy inside. The critic could argue that all the money that is spent on promoting these products is wasteful and contributes nothing to the nutritional well-being of children. These resources could instead be better used for a worthwhile cause like cancer research or public education. This critic may have a point, but consumer sovereignty suggests that if parents continue to vote with their purchases in favor of branded breakfast cereals (or if children have the power to influence their parents to do so), breakfast cereal companies will exist to meet this demand.
If consumers are sovereign, then it is probably a good idea to consider models of consumer behavior in a course like this. The aim of this chapter is to provide an overview of some economic theories of the consumer. The first section addresses the neoclassical theory of the consumer. Two extensions of this theory that have particular resonance in food markets are covered next. One is Lancaster’s (1966) model, which emphasizes products as delivery mechanisms for characteristics. The other, Becker’s (1965) model, theorizes that market-sourced products are inputs for household production activities. All three of three of these models – the Neoclassical model, Lancaster’s model, and Becker’s model – are based on the idea that consumers are rationale. They know what they want and what is available. Moreover they can make choices that are best for them given what they are able to afford. The primary objectives of this chapter are as follows: