Microeconomic and Macroeconomic Viewpoints

Although the microeconomic model has had an important influence on our understanding of consumers to provides a severely limited explanation of consumer behavior with a major deficiency being its highly unrealistic assumptions. For example, consumers frequently strive for acceptable and not maximum levels of satisfaction. In addition consumers lack perfect knowledge regarding products and they often influence each other’s preferences. Also, they appear to use many variables in addition to price to assess a product’s costs and may frequently use price as a measure of product quality as well as cost. Finally consumers simply do not appear to be perfectly rational in all their purchase decisions. These unrealistic assumptions may not have hindered the usefulness of this model in explaining the behavior of an entire economic system, but they certainly are not as useful in understanding how actual consumers behave in specific purchase situations of concern to marketers and others.

An additional shortcoming of the microeconomic scheme occurs as a result of its focus on the specific act of purchase. Much consumers behavior occurs before and after this act. Considerable decision making and search for information can precede it and purchase evaluation as well as additional purchase can follow it. Since the model does not address these activities we cannot accept it as a comprehensive representation of consumer behavior.

Even with its limitations the microeconomic model has been useful. It provides a perspective from which to better appreciate contemporary models of consumer behavior. In addition, we should now be more sensitive to the critical way in which the usefulness of a consumer model depends on its assumptions and we should be ready to evaluate others models in terms of their dependence on stated or implied assumptions. Finally, because economists have modernized certain aspects of the microeconomic model, it continues to have an important influence on contemporary thinking regarding consumer behavior.

Macroeconomic Viewpoints: Macroeconomic focuses on aggregate flows in the economy – monetary value of goods and resources where they are directed , and how they change over time. From such a focus the macroeconomic draws conclusions about the behavior of consumers who influence these flows. Although the discipline has not generated a full unified model of consumers it does offer a number of insights into their behavior.

One interest centers on how consumers divide their income between consumptions and savings. This deals with two economic facts of life; higher income families spend a smaller proportion of their disposable income than lower income families do but as economic progress raises all income levels over time these portions do not seem to change. That is, lower income groups do not significantly change the proportion of income devoted to spending as economic progress results in an increase in their income. The relative income hypothesis explains this apparent contradiction by arguing that people’s consumption standards are mainly influenced by their peers and social groups rather than their absolute income levels.
Therefore the proportion of a family’s income devoted to consumptions is expected to change only when an income change places the family in a different social setting. This will not happen when all income levels rise at the same time.

Another macroeconomic proposition the permanent income hypothesis explains why specific individuals are slow to change their consumption patterns even when their incomes do suddenly change. It proposes that consumers do not use actual income in any period to determine the amount of their consumption expenditures but instead are influenced by their estimate of some average long term amount that can be consumed without reducing their accumulated wealth’s sudden increase or decrease in income are viewed by the consumers as temporary and therefore are expected to have little influence on consumption activity.

A variety of other variables have been suggested by macroeconomic as influencing consumption patterns.