5 - Theory of consumer behaviour

Summary

Introduction

The purpose of all agricultural production is the satisfaction of consumer wants. In this chapter we will present an analytical framework with which consumer behaviour can be studied. At the outset we must distinguish between human requirements in physiological or nutritional terms and demand for agricultural products which is expressed in economic terms. The study of the former, while useful as a means of identifying instances of malnutrition or other forms of deprivation, does not offer any information on how consumption patterns alter as consumers’ economic circumstances change. The analysis of a number of important policy questions requires an understanding of consumer demand as expressed in the marketplace.

For example, the policy analyst might require information on the following:

In the course of economic development with average incomes rising, which sectors in the economy will prosper and which will decline in importance? Within the agricultural sector, which producers will enjoy an increasing demand for their products and which producers will face a stagnant or declining market?

How would the pattern of consumption change, if the distribution of income were to change? Will an increased rate of urbanisation have any effect on consumption?

If the price of a particular food product is changed, say by imposing a sales tax or a subsidy, how will consumers respond? What will be the effect on consumption of that product, the consumption of other foods, the government exchequer etc.?

A basis for theoretical and empirical work on these types of questions is provided by the traditional or neoclassical model of consumer behaviour and it is with this approach that this chapter is concerned.