5.5: Concluding Comments
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Market demand arises from the decisions of consumers. The aim of this chapter has been to provide background on three consumer choice models relevant to food demand. Each is based on the simple idea that consumers choose the best bundle that they can afford. The models differ in terms of how consumer utility is specified and how affordable sets are characterized.
In the neoclassical model of consumer choice, the consumer derives satisfaction directly from goods and services acquired in the marketplace. Affordability is defined as the set of product bundles the consumer can purchase with his or her money income. It was shown that given several reasonable assumptions, the neoclassical model of consumer choice can be used to derive individual demand schedules that have properties similar to market demand schedules introduced in Chapter 1. However, the model does not shed a great deal of light on why a consumer might prefer a particular market good or service or why he or she might prefer one product bundle to another.
Lancaster’s model differs in that it focuses not on the products themselves but on the characteristics they contain. In Lancaster’s model, you learned that the consumer derives satisfaction for characteristics, for example, sensory attributes or nutrients. Market provided goods are important to the model in that they constitute the delivery mechanism for the attributes desired by the consumer. Thus, Lancaster’s model can provide additional insight into attributes of products that influence the consumer’s desire for them. Lancaster’s model provides theoretical underpinnings for hedonic pricing models. The logic of Lancaster’s model is particularly suited to products that are in a state of latent demand as described in chapter 1. The Lancaster framework permits a new product innovation to be compared to existing products in the characteristic space and can provide insight into whether the new product would be competitive at a price that justifies its production cost. Many product design activities in the food marketing system can be viewed within the context of Lancaster’s model examples include fortification of food offering and the design of product offerings with reduced fat, sodium and/or sugar content.
Finally, Becker’s model differs in that market-sourced products are used as inputs for household production. Time is essential to understanding affordable set in Becker’s model, which explicitly accounts for the opportunity costs of household-produced goods. The consumer’s time allocation directly effects his/or her ability to secure products in the marketplace. Becker’s model provides a useful template to understand growth in convenience foods over recent decades. Time spent in household production has a clear opportunity cost in the form of time not spent in the labor force and the value of foregone utility from leisure. As opportunities for women to work outside of the home have increased markedly in the post World-War-II era, the food system has responded by increasing product offerings that reduce preparation time.