SummaryIn this Learning Path we look at consumer behaviour from a theoretical perspective, trying to solve the basic problem we all face every day: how to get as much of what we want or need without blowing our budget.
Goods are something that provides its holder some kind of satisfaction, and therefore has a utility. There are different kinds of goods, and different classifications can be arranged and identified. We can differentiate between consumption goods (durable or perishable) and capital goods. Classification depending in responsiveness to incomes changes (normal goods and inferior goods) and to price changes (ordinary goods and Giffen goods) can also be made.
-Normal goods are those whose demand increases due to a rise in income levels, having therefore a positive correlation, which implies that the elasticity of this kind of goods is always higher than 0. Normal goods are divided in two categories, Superior goods and Necessary goods.
·Superior goods, also known as luxury goods, are those goods that displace the demand of inferior goods after a rise in consumers’ income. They are a kind of normal goods as their demand increases when income does as well, however, the difference is that they occupy the share of inferior goods. The elasticity of this kind of goods is, for this, always higher than 1.
·Necessary goods are those whose demand increases when income does, however the increase in demand is less than proportional to the rise in income. Elasticity of this goods is always between 0 and 1.
-Inferior goods are those whose demand moves in opposite direction to the income variation of consumers. This occurs because consumers’ preferences change to other goods that are more highly regarded.
-Ordinary goods are those goods whose demands move in opposite direction to the price variation. This means an increase in the price of the good will mean a decrease of its demand and the other way around.
-Giffen goods are those goods whose demand moves in the same direction as the price variation, this meaning, raising the price of the good will increase its demand, and the other way around. The explanation to this kind of goods comes from the “Snob Effect”, the more expensive a good is, the less people can afford it, and therefore becoming more precious and highly valued.