Discuss consumer behavior and how people respond to price changes - Essay Example

Discuss consumer behavior and how people respond to price changes In general, people will tend to consume more when prices fall and will tend to skimp consumption when price pushes upward. This is the logic of sales in department stores where they will lower the price to encourage consumption and inversely, it is thought that higher prices will mean lower sales because consumers will think that they are not getting good value from their money. This is consistent with the basic law of supply and demand in economics where more supply would lower the price and less supply would drive the price up.

But this is not particularly true all the time. There are several conditions where consumers will not tend to consume more even if the price is lowered nor will they tend to consume less if the price is driven up.Price elasticity and inelasticity in demand In general, consumer demand changes depending on the rate of change of prices. As the law of price elasticity dictates, demand is sensitive to price. This however particularly true to regular products that are regularly consumed which are categorized as elastic.

There are several factors that affect price sensitivity or elasticity of a product which affects consumer behavior. First and the most obvious are the products that people can live without are highly elastic and therefore the change in price also affects the price. The most typical examples for these are luxury items such as jewelries where its steep price prohibits many people to acquire and a drop in price significantly increases the demand. The same is true with branded bags or clothing where a sale will almost immediately increase consumption.

Another factor that affects elasticity is the availability of alternative products which affects consumption. Availability of products does not only mean substitute products but also competitors who could offer the same product at a lower price. The classic example of this is our favorite McDonald where it has to be priced low otherwise its customers will either move to its competitors such as Burger King or look for alternative for hamburgers such as taking pizza instead of a burger.There is an instance however that demand will become inelastic or consumer behavior will not change regardless of price.

This is true with inelastic products such as medicine that no matter how much the price is, the rate of purchase or consumer behavior will remain the same. It is because people need to buy medicine when they are sick. They also cannot defer purchase regardless of price and will immediately purchase once the money is available to them because they do not want to remain sick.