Consumption is the act of satisfying one's wants. It is defined as "the use of goods and services for satisfying wants". J. M. Keynes said, "Consumption is the sole end and object of economic activity". Consumption is the beginning of economic science: in its absence there can be no production, exchange or distribution. It is studied at both the micro and macro level. This chapter studies consumer behaviour through the cardinal approach (Marshall) and the ordinal approach (Hicks and Allen).
1. Human Wants and Their Characteristics
In ordinary language desire and want mean the same thing, but in economics they have different meanings. Wants are the basis for human behaviour to buy and consume goods.
- Wants are unlimited – countless; they multiply with the growth of civilization.
- Wants become habits – e.g. reading a newspaper, drinking tea.
- Wants are satiable – a particular want can be satisfied at a given time (food satisfies hunger).
- Wants are alternative – a want can be satisfied in alternative ways (idly, dosa or chappathi).
- Wants are competitive – not all wants are equally important, so we choose more urgent wants first.
- Wants are complementary – one want needs more than one commodity (car and petrol, ink and pen).
- Wants are recurring – some wants occur again and again (hunger).