Thinking Like Consumers
Even though they may be unaware of it, consumers use marginal analysis when they make economic decisions. For every good or service, there is a point at which consumers change their minds about making a purchase if the price gets too high. Consumers are not necessarily aware of the fact that it was marginal analysis that led to that decision.
Producers, on the other hand, pay close attention to marginal analysis. They hope to maximize profits, which means they want as many customers as possible to pay the highest price possible. To achieve this, they try to predict consumer behavior. Producers ask themselves questions such as, «Will raising ticket prices by $1 drive away moviegoers, or will most consumers be willing to pay that much more?»
Producers use marginal analysis all the time. When producers can increase the utility of consumers, they sell more goods and services. When they can get the most out of consumers, they will maximize profits.
Producers study consumers to see how they make decisions.
More Than Price
Marginal analysis can be applied to other questions as well. Any time one more unit of something can be added, the question of whether it is beneficial to do this must be asked and answered.
A bank manager looks a bit worried. Her customers seem to be waiting a bit too long before they are served by a teller. What if she hired one more teller? The waiting time would decrease, and her customers would be more satisfied. If the customers do not have to wait very long, it is highly possible they will return to the same branch.
A hungry customer has already eaten three plates of sushi. He is considering ordering one more plate and uses marginal analysis to compare the pros and cons of doing so. He knows that he might not enjoy the fourth plate of sushi as much as he enjoyed the first three. And he does not want to get sick from overeating. In the end, his marginal analysis tells him to forgo that fourth plate.
David is a city council member. The council needs to vote on a one cent increase to a local tax. David and another city council member want to vote in favor of the tax increase. The extra money will allow the city to replace a worn-out playground at a neighborhood park, which would be beneficial to local residents with children. A third council member is against the tax increase, because not all residents will benefit from the new park, and she thinks the money could be spent in a better way. Marginal analysis is different from person to person because everyone has individual goals and values.
Everyone is unique. It is what makes people separate individuals, each with their own likes and dislikes. In the game of economics, this uniqueness means that consumers have different tastes and different preferences when it comes to buying goods and services. Look at all the brands and types of cereals in a grocery store. That should give you some idea of how diverse consumers’ tastes are.
Consumer decisions are influenced by many factors. Taste is just one of them. See the list below for some of the nonmonetary factors that influence consumers.
– Taste
– Culture
– Beliefs
– Values
Beyond Money
Culture, family traditions, and personal values all affect consumer decisions. These factors are nonmonetary incentives.
When a family celebrates Thanksgiving, they make economic decisions that might be influenced by the desire to cook the perfect meal. So, they might ignore other factors, like price, because they gain more utility from the feast itself than from cutting costs. The nonmonetary incentive of hosting a great Thanksgiving meal outweighs monetary incentives – at least to a point.
The combination of cultures, beliefs, and values leads to different kinds of decisions being made by different consumers, even when they face the same situation.
Working together as a family offers incentives that go beyond money.
Culture Matters
The desire for particular goods and services is often influenced by a person’s culture.
Part of the culture of the United States is Independence Day, or the Fourth of July. Thanksgiving is also important in the United States. Because of these features of the culture, consumers buy a lot of fireworks in early July and a lot of turkeys in late November.
How Culture Influences Consumerism
As we learned before, our economic decisions are based on what culture or cultures we belong to. Culture is more than just holidays and sports, though. For instance, the rock-and-roll culture is highly present in many countries around the world. People who belong to this culture enjoy dressing like rockers, buying and listening to rock music, attending concerts given by their favorite bands, and collecting memorabilia.
Traditional Native American cultures consider humans an integral part of the environment, not a dominating force. They are closely tied to natural resources and events, and they value and respect nature. For example, they avoid over-consumption of water or lumber in order to protect lakes and forests. They also value self-sufficiency, and often produce their own goods and services through gathering, hunting, and fishing.
We do not necessarily have to be part of a culture to celebrate it. For example, St. Patrick’s Day is an important holiday in Ireland, but it is also widely celebrated all over the world. On March 17 of every year, people of all different cultures can be found wearing green and making merriment. Producers take advantage of the universal appeal of St. Patrick’s Day to market and sell specific products, such as green clothing, festive decorations, and even green food. In this case, St. Patrick’s Day has become an adopted culture for many.
Values and Beliefs
Culture is more than just holidays and traditions. Different cultures have different values and beliefs that influence their members’ behavior.
Values and beliefs are linked. If you value a clean environment, then recycling is likely to be a part of your value system. Your behavior is guided by that value. If you believe that free trade is the best kind of system, then you would not mind buying leather shoes from Brazil or a pair of jeans imported from Italy. If you believe in supporting local businesses, on the other hand, you might buy only locally grown fruits and vegetables.
Producers try to understand consumers’ values and beliefs when allocating resources, because values and beliefs affect the way consumers make economic decisions.
For example, recycling is an integral part of South Korean culture. The government makes sure that recycling bins are available across the country, and it employs officers who routinely check to make sure people put their refuse in the correct bin. Because this is an important value among South Koreans, producers there try to make eco-friendly products to increase the sense of utility among consumers.
How green are you?
Risk
