Understand economics from scratch

Chapter 9 Is People’s Consumption Always Rational——You Need to Know a Little About Consumer Economics (1)
Production is for consumption.Production is meaningless without human consumption.When we understand this, we understand the purpose of human economic development.As P. Streeton said: "We must never lose sight of the ultimate goal of economic development, which is to put people first, improve their living conditions, and expand their choices... If economic growth (measured by per capita income ) and human development (reflected, but not easily measured, in terms of longevity, culture, or success such as self-esteem), the unification of the two is useful. But the two expressions do not Very relevant."

Discussions about the consumer economy first began in the West.When economists investigate the social production process, they have raised issues such as the contradiction between production and consumption, the role of individual consumption and social consumption, consumption behavior and consumer sovereignty, consumption structure, consumption level and development trend, and consumption policy. through their own opinions and discussions.However, consumer economics, as a new independent subject, appeared after the Second World War.At that time, the economies of many countries recovered and grew rapidly, and major changes occurred in production technology and marketing methods.The increase in the supply of products and services has raised an urgent problem for entrepreneurs and economists, that is, how to make production more suitable for market demand, so as to reduce unsalable goods and increase corporate profits.At the same time, the question was raised before the government of how to avoid a repeat of the great crisis of the 20s.In this situation, consumer economics began to develop as an independent discipline.

Consumer Choice Theory: How People Choose Products
When people are in a sea of ​​shops with limited financial resources and time, they can always spend the most amount of money to choose the items they need most. What is the reason?
In order to explain people's consumption behavior, the British philosopher Bentham introduced the concept of utility into economics.Later economists have been using the concept of utility to measure the happiness or satisfaction consumers get from a set of goods and services.For example, if there is 100 yuan, people can spend all of it on bread, half of it on bread and half on beer, or all of it on beer.People who think the first choice is the best might prefer bread, people who think the last choice might prefer beer, and people who think the middle choice is the best might have the same preference for bread and beer.Therefore, consumers will choose the ranking that best suits their preferences among different goods and services in order to maximize their utility.

The same unit of goods has the same utility, but when used together, is the utility of the former unit of goods the same as that of the latter unit of goods?To solve this problem, economists use the concept of marginal utility to express the utility of the last added unit of a good.

Marginal utility refers to the new or additional utility brought about by consuming one more unit of goods or services.To give a simple example, when people eat watermelon when they are thirsty, the first piece of watermelon is the coolest and most delicious, and the taste after that is worse. This is the evidence of the well-known law of diminishing marginal utility in economics.Economists reflect on their own feelings and emotions, and establish the law of diminishing marginal utility as: when other conditions remain unchanged, as the consumption of a certain commodity or service increases, the new or marginal utility that people get from it The volume is constantly decreasing.

In the theory of consumer choice, we believe that people are rational marginal people who always choose their most preferred combination of consumer goods to maximize their utility.But consumers are not wizards who are proficient in mathematics, and they can calculate the marginal utility to the percentile in a short period of time. Uncautious consumers are also vulnerable to being deceived by salesmen when making decisions.But in general, consumers can still maximize the utility of their consumption behavior.

Budget Constraints: The Impact of Purchasing Power on Consumption Behavior
Different combinations of goods reflect people's trade-offs when they spend the same amount of money on different goods.But no matter what the consumption mix is, the marginal utility brought by every 1 yuan is always the same.

As far as most people are concerned, people are willing to have good and many goods and services-go to five-star hotels for leisure and entertainment, drive the most luxurious cars, and wear the most elegant clothes.However, in reality, most people will only choose fewer items, because everyone will be limited by their own financial resources.So what impact does a consumer's purchasing power have on his consumption behavior?

In reality, people buy a wide variety of items, and there are countless combinations that people can consume.For the sake of research, we only analyzed people's monthly breakfast items—soy milk and pizza.Suppose a person is willing to pay 1000 yuan per month for breakfast, the price of a cup of soy milk is 1 yuan, and the price of a pizza is 2 yuan.Then he can consume these two items in an infinite number of combinations.For example, he can only eat pizza and consume 1 pizzas per month; he can only buy soy milk and consume 10 cups of soy milk per month; he can also buy 100 cups of soy milk and 500 pizzas.

In economics, this line is known as the consumer's budget constraint—the possibility frontier of the consumer's affordable consumption mix, and it shows the trade-offs people face between the items they consume.The slope of the consumer’s constraint line is 5, reflecting the trade-off offered to consumers by the market: 5 cups of soy milk for one pizza—that is, the price of one good compared to the other.

为什么1个比萨饼等于5杯豆奶？因为1个比萨饼的边际效用5倍于豆奶，所以1个比萨饼等于5杯豆奶。

From the consumer budget constraint line, it can be seen that the combination of two items at points A, B, and C, and even other quantity combinations on the line bring the same total utility to consumers.That is to say, people are willing to pay 1 times the price of soy milk for pizza only if the marginal utility of 1 pizza is 5 times that of 5 cup of soy milk.If a cup of soy milk can provide people with more marginal effects, then people will transfer the money used to consume pizza to soy milk until the marginal utility of soy milk per 1 yuan is equal to the marginal effect of pizza per 1 yuan, which is Equimarginal effect in economics - under the condition that the consumer's income is fixed and the market price of the goods he consumes is given, the marginal utility of the last 1 yuan he spends on one kind of goods is exactly equal to the marginal utility spent on other goods. When the marginal utility of the last 1 yuan on each item is obtained, the consumer can get the maximum utility.

Irrational factors: Are people's consumption always rational?

British psychologists found that young women are more likely to have shopping impulses.They are more likely to overspend and have a higher rate of intemperance in spending. "I get caught on the urge to buy something, and if I don't buy something, I feel anxious and like I can't breathe. It sounds ridiculous, but it happens every month." Said one woman who participated in the scientific study .

We know that one of the preconditions assumed by economic theory is that people are rational.As a consumer, he should calculate as accurately as possible between costs and benefits, and strive to maximize utility.However, social scientists engaged in marginal research in economics and psychology have discovered that human consumption behavior is extremely complex. They have both rational consumption in economics and irrational consumption such as forgetfulness, impulsiveness, face-saving and short-sightedness.The "Kanu", "Moonlight Clan" and shopaholics that exist in real life prove that people have irrational behaviors in consumption.

Why did the "Moonlight Clan" appear?

Psychologists believe that irrational consumption can be divided into three types: dominant type, impulsive type and comparison type.

Most of the dominant consumers are women. Because they are broken in love or work is not going well, they will use shopping as a way to vent their emotions. Therefore, they don’t care about the price of the goods when shopping. They just spend all the money and put the items away Putting it in your own home will create a sense of security.Dominant consumers are the most likely to become shopaholics.

Impulsive consumption is also called impromptu consumption.This type of consumers tends to become "moonlight clan" because they don't have any consumption plans in advance, and it is not until they go shopping or go to the supermarket that they see items that cause temporary consumption impulses.The things bought at this time are not necessarily what they want most.

Comparison consumption is rooted in the psychology of comparison. This type of consumer shopping is not to pursue utility, but to show off its status and value with the purchased items.These items are often some luxury goods, beyond the scope of the needs of these consumers' survival and development, such as some brand-name bags, high-end clothing and high-end cars.

The danger of irrational consumption is that it will lead social wealth into useless or exaggerated utility, or even harmful lifestyles, while there are not enough resources to produce what people really need.

From the perspective of human history, people before modern times focused on rational consumption and advocated thrift.It was not until the emergence of Keynes's theory of stimulating domestic demand in the middle of the 20th century that people acquiesced or even encouraged irrational consumption. The world's luxury goods market grew gradually through this encouragement.According to reports, in 2004 China's luxury goods consumption reached 60 billion US dollars (not counting the consumption of luxury yachts and helicopters), accounting for 12% of the global luxury goods consumption, which is very inconsistent with the overall wealth of the country.Most of the luxury goods consumed by Chinese people are international brands, and there are few domestic brands. As a result, a large part of national wealth has been squandered and the social polarization between rich and poor has been exacerbated.

Price Discrimination: Reasons for Different Prices for the Same Item

There is a passage in the Shaoxing opera "He Wenxiu" that goes like this, the fortune-teller said: "The big family is called fortune-telling, and the life gold is five taels of silver; For half a penny, if there is a child in the family, the husband will also give a gift money, and 24 copper coins will be given to the child to buy cakes."

Of course, even if the fortune-teller's words are heard by the rich family, the rich family may still ask him for fortune-telling, as long as the fortune-teller can provide services that match the value.The fortune teller's different pricing strategies for different families do not seem to affect his "business".

In life, we often encounter such a phenomenon. In most supermarkets, customers can buy cheap goods by showing their membership cards or points coupons; The money is different; for those who sell computers, it is cheaper to sell them to college students than to those in the workplace; "Half ticket", watching the same movie, holiday audiences have to pay more than usual audiences to buy tickets; women can dance with friends on weekends, women can get free tickets... According to the principles of economics, these are price discrimination behaviors.

The so-called price discrimination is essentially a price difference, which usually refers to the implementation of different sales prices or charging standards when the supplier of goods or services provides goods or services of the same grade and quality to different recipients.

Price discrimination is an important monopoly pricing behavior, and it is a pricing strategy for monopoly enterprises to obtain excess profits through different prices. It is beneficial for monopoly enterprises to obtain more profits.If the commodity can be sold at a higher price, the producer can make more money, so try to set the commodity price as high as possible.But if the commodity price is set too high, it will drive away many consumers with low payment ability and relatively elastic demand, which will lead to the reduction of producers' profits.

Adopt a method of getting the best of both worlds, earn money from the rich and those with high needs at a higher commodity price, and earn money from the poor and those with low needs at a lower price , which is the purpose and the fundamental reason for price discrimination.The most typical example is air tickets. The ticket price of business travel is always higher than that of general travel, because airlines charge 00% of the ticket price for business customers with tight time requirements, and the time flexibility for advance booking is relatively large of customers are selling at a discounted price. "You don't sell someone a seat for $400 when they're willing to pay $69. Meanwhile, airlines are willing to sell a seat for $69 instead of leaving it empty." A vice president revealed the significance of the price discrimination strategy.

Whenever possible, merchants should practice price discrimination pricing strategies.Every consumer has a different price elasticity of demand. As long as the merchants can effectively separate them in the market, price discrimination can "capture" more customers, separating those who can pay high prices from those who can only pay low prices. Customers with high prices will be swept away to obtain the greatest possible profit.

Many large companies have done quite well in terms of pricing strategies. We can see that a general large company will have multiple brands, form a brand group, use different brand customer groups, and set different prices for different grades of consumers. so as to obtain maximum profit.The multi-brand strategy implemented is a typical multi-level price discrimination, which is often used by Wuliangye and Procter & Gamble.

The price discrimination strategy is not limited to the forms mentioned above. As long as the general conditions of price discrimination are met, that is, the product is personalized and differentiated, the price discrimination strategy can be used.Differentiation is the main feature of using price discrimination strategy.The following are good examples of companies using price discrimination strategies for differentiation:
（1）同样服务的时间段上的价格差异。这是对商品按不同时间段定价。例如，某网球馆在周一至周五的上午：8：00—10：00为早练时段，按照5元/小时收费；10：00—19：00为休闲时段，按照8元/小时收费；19：00以后以及周末为娱乐时段，按照15元/小时收费。电影院日电影票和夜场电影票的差别以及供电局的电费在夜晚和白天的差别，冬季和夏季的差别，都是利用时间段差异化定价的典型例子。

(2) Differentiated discrimination of special groups through the use of vouchers or coupons.Coupons can artificially create group differentiation.

For example, a gift company sends out coupons for students, and stipulates that the coupons are valid only when used together with student ID cards, and each coupon can provide a 7% discount.This separates the student population from other groups and discriminates against them.For another example, a melon company claimed in a media advertisement that if you cut out the coupon in the advertisement, you can use it for 2 yuan when purchasing.The company did not directly cut the price by 2 yuan, but used this strategy to divide customers into two different consumer groups: price-sensitive and insensitive. Price-sensitive customers are generally students or elderly people Use coupons; while others, such as high-level white-collar workers, private business owners, etc., dismiss these offers and just buy at the original price.In doing so, you actually charge those price-sensitive customers a lower price than other customers.

The premise of "price discrimination" is market segmentation.If producers cannot divide the market, only one price can be imposed.If producers can segment the market and distinguish customers, and the different segments of the market have significantly different payment capabilities and demand levels, then the company can implement different commodity prices for different groups, and try its best to achieve higher commercial profits for the company .Of course, the premise that a merchant can do this is that it can accurately "identify" customers.Therefore, when an independent doctor sees a patient at home, he always asks three questions, such as: "Do you often go to restaurants to eat?" "Do you often do fitness activities? Do you often travel?" "What kind of wine do you usually drink?" Don't think that he is just concerned about your daily life, in fact, he is still "reconnaissance" of your economic strength, so as to make his "price discrimination" have a basis when quoting prices.

It can be seen that understanding price discrimination will enable us to see the essence of many economic phenomena, and it will be of great help to our daily life.

Substitution effect: eat more beef when the price of pork rises

In a small supermarket, the owner of the store is teaching the new boy the tricks of business: "You know, you can't just let customers go back empty-handed just because the store doesn't have what they want. A great businessman knows how to use Substitutes to sell to customers.”

Later, once, when the boy was looking at the store, a customer came in. "I want to buy toilet paper." "Sorry, it's just sold out." At this moment, he remembered what the boss said to him, so he hurriedly said, "Sir, the toilet paper has just been sold out... But, do you want fine sandpaper?" ?”

Seeing this, you may not be able to help but laugh.But besides laughing, we can see an economic term from it, that is, substitute.Among commodities, substitutes and complements are combinations of commodities with a certain "blood relationship".In economics, they are the magic weapon of reference for corporate pricing.Substitutes and complements are two types of products triggered by the theory of demand cross elasticity, and together with demand cross elasticity, they have a wide and common application in enterprise strategy.

(End of this chapter)