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In advanced and affluent societies because the intrinsic demands of the consumers have been already met, there is an artificial demand which is generated by the corporate houses. This is done in a race to out do each other and sells their goods which are mainly consumer oriented products; however this statement of Galbraith goes against the theory of consumer demand and behavior.
This paper initially examines the classical theory of consumer demand and the intrinsic demands of consumers. It explains the dependence effect as given by Galbraith in his book The Affluent Society and then later looks into the reasons why Galbraith rejected the theory of consumer behavior for affluent markets.
Classical Theory of Consumer Demand
The theory of consumer demand is defined as the analysis of demand with regard to consumer behavior. The theory predicts the demand under varying factors, such as price, income, and substitute goods. Opportunities and preferences are the two major components of consumer demand. The opportunity is, what the consumer can afford keeping the budget constraint and the preference is, what and how much the consumer likes a product keeping the utility constraint.
The classical theory of consumer demand justifies the production of any goods or services on the premise that demand for these goods or services exist. It also goes on to explain that these demands or needs are not limited and their urgency does not appreciably diminish with satisfaction of these demands. The statement that the demands do not become less urgent even when they are satisfied may itself be in contrast to the common sensibilities of many, but it is true because these demands are not the basic physical demands, but these are derived demands which we inherit from the society that we live in and they continuously grow.
The Dependence Effect
John Kenneth Galbraith (1958) in his book The Affluent Society explains that the needs or demands of consumers in the developed markets are being created by the process that satisfies these demands. It is a known fact that the psychological needs take over, after the physical or the intrinsic needs of food and shelter are satisfied. These psychological needs are also the basis of all the other development which takes place in our societies. The classical theory suggests that the urgency of demands fuel production, however the demands of a sports car or fast food cannot be urgent as they are not the basic demands of an individual. These demands are the derived demands and have been created by the process of over production itself. Advertising and salesmanship act as a catalyst to this entire process and ensure demand creation to dizzying levels. Hence the urgency of demand cannot be used to defend the case of over production.
The Dependence Effect therefore is the direct relationship between the production of goods and the demand which is generated for these very goods. In the affluent societies as the basic demands are mostly met the consumer is open to persuasion. The consumer falls prey to a large variety of goods that are made available to him, all of varying quality. As the production of these goods increases so does the expenditure on demand generation. The major methods that are employed for demand generation are advertising
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(Artificial Demand Creation Essay Example | Topics and Well Written Essays - 1000 Words)
“Artificial Demand Creation Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1518182-artificial-demand-creation.
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