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1. Week 3 Consumer Behaviour Business Economics Christopher Joshua Leksana , S.M.,M.M.

2. LEARNING OUTCOME LO.2. Apply the consumer behavior, producer behavior, and exemplify various market structures. Consumer Behavior Behavioral Economics Advertising and Branding Asymmetric Information

3. Consumer Behavior 3.1. Behavioral Economics 3.2.. Advertising and Branding 3.3. OUTLINE

4. OUTLINE

5. 3.1. CONSUMER b e havior

6. John A. Howard defines CONSUMER BEHAVIOR as “The decision-making process involving the selection, purchase, use, and disposal of goods and services by individuals."

7. Standard Economic Model The assumptions of the standard economic model that influence consumers in consuming are: - Buyers are rational - A larger quantity of goods is preferable to a smaller quantity of goods. - Buyers seek to maximize their utility .- Consumer freedom of action

8. Utility UTILITY the satisfaction derived from consumption Within the framework of economic theory, the concept of use value or utility indicates that every product has usefulness or at least provides satisfaction to consumers who use it. Therefore, when a buyer or consumer is looking for an item, what he really wants is the use value provided by the item. In other words, use value or utility reflects the level of satisfaction felt by someone when consuming the goods or services.

9. Total and Marginal Utility marginal utility the addition to total utility as a result of one extra unit of consumption diminishing marginal utility, a ‘law’ that states that marginal utility will fall as consumption increases marginal rate of substitution the rate at which a consumer is willing to trade one good for another

10. Budget Constraint Budget constraint the limit on the consumption bundles that a consumer can afford The Consumer’s Budget Constraint

11. Indifference Curve Indifference curve a curve that shows consumption bundles that give the consumer the same level of satisfaction Two of the consumer’s many indifference curves    

12. The characteristics of an indifference curve are: The indifference curve falls from top left to bottom right (has a negative slope) Convex towards the origin Two indifference curves do not intersect. A high indifference curve (I 2 ) depicts higher satisfaction. If two indifference curves intersect, it means that the same combination of goods X and Y will offer higher satisfaction.

13. Optimization – What The Consumer Chooses     M = P x . (X) + P y . (Y)

14. 3.2. Behavioural economics

15. Many of the things we do in life and the decisions we make cannot be explained as rational beings. (Rational creatures are sometimes referred to by economists as homoeconomicus ). Humans cannot truly be rational creatures as assumed in economic theory. In reality, humans face complex problems in making rational decisions. Humans can experience forgetfulness, impulsiveness, confusion, emotionality and short-sightedness. This imperfection of human thought has until now been ignored by economists

16. Bounded Rationality BOUNDED RATIONALITY the idea that humans make decisions under the constraints of limited, and sometimes unreliable, information, that they face limits to the amount of information they can process and that they face time constraints in making decisions

17. 3.3. Advertising and branding

18. Advertising Advertising as a Signal of Quality ADVERTISING is closely related to the existence of branding

19. Branding BRANDING the means by which a business creates an identity for itself and high lights the way in which it differs from its rivals

20. ADVERTISING VS BRANDING

21. 3.4. ASYMMETRIC INFORMATION

22. In the framework of economic theory, market failure can occur due to asymmetric information, which indicates incomplete information between the parties involved, such as buyers and sellers, who do not have the same information and can result in one party experiencing losses. In marketing practice, ASYMMETRIC INFORMATION often occurs due to a lack of knowledge by one party regarding price, quality, or types of buyers and sellers.

23. Hidden Actions: Principals, Agents and Moral Hazard MORAL HAZARD the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior agent a person who is performing an act for another person, called the principal principal a person for whom another person, called the agent, is performing some act adverse selection the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party

24. References: N. Gregory Mankiw. (2021). Principles of Economics , 9 th Edition. Cengage Learning: United Kingdom. ISBN : 9789814915342.   2. John Sloman , Dean Garratt, Jon Guest and Elizabeth Jones. (2023). Economics for Business , 9 th Edition. Pearson: United Kingdom. ISBN: 978-1-292-44020-0.

25. BUSINESS ECONOMICS THANK YOU Christopher Joshua Leksana , S.M.,M.M.