PREPARED BY: ALISSANDREI ANN LACUATA

Howard Sheth’s Model

 The Howard Sheth Model is a sophisticated integration of the
various social, psychological and marketing influences on
consumer choice into a coherent sequence of information
processing. It aims not only to explain consumer behavior in terms
of cognitive functioning but to provide an empirically testable
depiction of such behavior and its outcomes (Howard 1977).

 The logic of the Howard Sheth model of consumer

behavior summarize like this. There are inputs in the form of
Stimuli. There are outputs beginning with attention to a given
stimulus and ending with purchase. In between the inputs and the
outputs there are variables affecting perception and learning.
These variables are termed ‘hypothetical’ since they cannot be
directly measured at the time of occurrence.
THREE LEVELS OF DECISION MAKING
 extensive problem solving. At this level the consumer does
not have any basic information or knowledge about the brand
and he does not have any preferences for any product. In this
situation, the consumer will seek information about all the
different brands in the market before purchasing.
 limited problem solving. This situation exists for consumers
who have little knowledge about the market, or partial
knowledge about what they want to purchase. In order to arrive
at a brand preference some comparative brand information is
sought.
 habitual response behavior. In this level the consumer knows
very well about the different brands and he can differentiate
between the different characteristics of each product, and he
already decides to purchase a particular product.
 FOUR MAJOR SETS OF VARIABLES
 Inputs: These input variables consist of three distinct types of
stimuli (information sources) in the consumer’s environment.
The marketer in the form of product or brand information
furnishes physical brand characteristics (significative stimuli) and
verbal or visual product characteristics (symbolic stimuli). There
are impersonal sources like mass media communication and
advertising, over which the firm has no control. However, the
information sources also include sales and service personnel who
can add and help the marketing efforts of the firm. The third type
is provided by the consumer’s social environment (family,
reference group, and social class). This social source is personal
and the company/marketer has no control over this source. All
three types of stimuli provide inputs concerning the product class
or specific brands to the specific consumer.
 Perceptual and Learning Constructs: The central part of the
model deals with the psychological variables involved when the
consumer is contemplating a decision. Some of the variables are
perceptual in nature, and are concerned with how the consumer
receives and understands the information from the input stimuli
and other parts of the model. For example, stimulus ambiguity
happened when the consumer does not understand the message
from the environment. Perceptual bias occurs if the consumer
distorts the information received so that it fits his or her
established needs or experience. Learning constructs category,
consumers’ goals, information about brands, criteria for
evaluation alternatives, preferences and buying intentions are all
included. The proposed interaction In between the different
variables in the perceptual and learning constructs and other sets
give the model its distinctive advantage.
 Outputs: The outputs are the results of the perceptual and
learning variables and how the consumers will response to these
variables (attention, brand comprehension, attitudes, and
intention).

 Exogenous(External) variables: Exogenous variables are not

directly part of the decision-making process. However, some
relevant exogenous variables include the importance of the
purchase, consumer personality traits, religion, and time
pressure.
Francesco Nicosia’s Model
 Nicosia Model of Consumer Behavior was developed in 1966, by
Professor Francesco M. Nicosia, an expert in consumer motivation
and behavior. This model focuses on the relationship between the
firm and its potential consumers. The model suggests that
messages from the firm (advertisements) first influences the
predisposition of the consumer towards the product or
service. Based on the situation, the consumer will have a certain
attitude towards the product. This may result in a search for the
product or an evaluation of the product attributes by the
consumer. If the above step satisfies the consumer, it may result in
a positive response, with a decision to buy the product otherwise
the reverse may occur. Looking to the model we will find that the
firm and the consumer are connected with each other, the firm
tries to influence the consumer and the consumer is influencing
the firm by his decision.
FOUR MAJOR FIELDS
 The firm’s attributes and the consumer’s attributes. The
first field is divided into two subfields. The first subfield deals
with the firm’s marketing environment and communication
efforts that affect consumer attitudes, the competitive
environment, and characteristics of target market. Subfield two
specifies the consumer characteristics e.g., experience,
personality, and how he perceives the promotional idea toward
the product in this stage the consumer forms his attitude
toward the firm’s product based on his interpretation of the
message.
 Search and evaluation. The consumer will start to search for
other firm’s brand and evaluate the firm’s brand in comparison
with alternate brands. In this case the firm motivates the
consumer to purchase its brands.
 The act of the purchase. The result of motivation will arise
by convincing the consumer to purchase the firm products
from a specific retailer.

 Feed back of sales results. This model analyses the

feedback of both the firm and the consumer after purchasing
the product. The firm will benefit from its sales data as a
feedback, and the consumer will use his experience with the
product affects the individuals attitude and predisposition’s
concerning future messages from the firm.
PREPAREDBY: KIMBERLY GARCIA
Utility
Refers to the satisfaction or
pleasure that can individual
or consumer get from the
consumption of a good or
service that (s)he purchases.
TWO IMPORTANT CONCEPTS:

MARGINAL UTILITY

TOTAL UTILITY
Marginal utility
The additional satisfaction
that an individual derives
from consuming an extra
unit of a good or service.
Total utility
The total satisfaction that a
customer derives from the
consumption of a given
quantity of a good or service
in a particular time period.
 Utils
 The standard unit of measurement
that microeconomics uses to
measured utility.

 Represent the welfare or satisfaction

of a consumer from consuming a
certain number of goods.
 How well do
Economists
measure utility?
 TWO APPROACHES TO
UTILITY ANALYSIS IN
ECONOMIC THEORY:

CARDINAL UTILITY

ORDINAL UTILITY
Cardinal utility
Assumes that the consumer has
the ability rto accurately
measure the level of utility s(he)
derives from consuming a
paerticular combination of
goods and assign an number to
it.
Ordinal utility
Comsumers areassumed to
rank consumption bundles
and choose among them.
PREPARED BY: ROSE KATE MERCADO
 If a good increase in a price
1. The good is relatively more expensive than
alternative goods, and therefore peple will switch to
other good which are now relatively cheaper.
(Subtitution effect)
2. The increase in price reduces disposable and this
lower income may reduce demand (Income effect)
 The subtitution effect states that an increase in the
price of the good will encourage consumers to buy
alternative goods. The subtitution effect measure how
much the higher price encourage cinsumer to buy
different goods.
 The income effect looks at how the price change effect
consumer income. If price rises it effectively cuts
disposable income and there will be lower demand.

 For example,
 If the price of meat increases then the higher price may
encourage consumer to switch to alternative food sources
such as buying vagetable.
 However, with the higher price of meat in means that after
buying some meat they will have lower spare income
therefore, consumer will buy less meat because of this
income effect.
 Indifference curve – Income and
subtitution effect of a price change
PREPARED BY: ELEEN JOY PEREZ
Consumption means the amount of something that
people and other entities use. It is also the process of
using something, often so that there is less of it
available afterward. The term may refer to the using of
products and services in an economy, or how much of
those goods and services people use.
 THEORIES OF CONSUMPTION

This theory was postulated by Keynes. According to this

hypothesis, consumption depends on the current level of
disposable income.
Disposable income refers to the total amount of income
available for use by households or the after tax personal
income.
THE IMPORTANCE OF CONSUMPTION
The Importance of Consumption. Every time you
purchase food at the drive-thru or pull out your debit
or credit card to buy something, you are adding to
consumption. Consumptionis one of the bigger
concepts in economics and is extremely
importantbecause it helps determine the growth and
success of the economy.
DIRECT AND INDIRECT
CONSUMPTION
Direct consumption refers to humans' use of natural
resources – including flora, fauna, water, and soil –
with their own hands. An example of direct
consumption is cutting down a tree or branch and
burning it for heat. ... However, even in a non-
industrialized setting, indirect consumption may be
widespread.
CONSUMER EXPENDITURE
Consumer Expenditure is the spending by households
in goods and services, excluding new housing .
 3 TYPES OF CONSUMPTION
 Durable Goods (expected to last more than 3 years)
 Non Durable Goods (expected to less than 3 years)
 Services
 CONSUMPTION GOODS IN
ECONOMICS

Consumption, in economics, the use of goods and services by

households.Consumption is distinct from consumption
expenditure, which is the purchase of goods and services for
use by households.
4 TYPES OF CONSUMER GOODS
 TYPES OF CONSUMPTION
EXPENDITURES
The three major types of consumption expenditures
are personal consumption expenditures, gross private
domestic investment, and Government purchases.
 TYPES OF CONSUMPTION
EXPENDITURES
Personal Consumption Expenditure is a measure of national
consumer spending and it tells you how much money spend on
goods and services.

Gross Domestic Investment is the measure of physical

investment used in computing GDP in the measurement of
nations' economic activity. This is an important component of
GDP because it provides an indicator of the future productive
capacity of the economy.

Goverment Purchase are used to buy the goods and services

needed to operate the government (such as administrative
salaries) and to provide public goods (including national
defense, highway construction)
CONSUMPTION GOODS IN
ECONOMICS
Consumption, in economics, the use of goods and
services by households.Consumption is distinct from
consumption expenditure, which is the purchase of
goods and services for use by households.
Macroeconomists are interested in aggregate
consumption for two distinct reasons.
WASTEFUL CONSUMPTION
The extent of wasteful consumption. This section
reports the results of a new survey on patterns of
wasteful consumption in Australian households.
Throughout this paper, the term wasteful
consumption is used to describe the amount of money
spent on goods and services that are never, or rarely,
used.
PREPARED BY: JILLIAN NAVARRO & JUSTIN CARINO
 It states that “as a consumer consumes more and more units of
a specific commodity, utility from the successive units goes on
diminishing”.
-

It describes a familiar and fundamental tendency of

human behavior.

According to Marshall, “The additional benefit a person derives

from a given increase of his stock of a thing diminishes with
every increase in the stock that he already has”
 The Concept of Utility
Utility is a measure of the satisfaction
that we get from purchasing and
consuming a good or service.

Total Utility
-The Total satisfaction from a given level
of consumption.

Marginal Utility
-The change in satisfaction from
consuming an extra unit.
 Diminishing Marginal Utility and Demand Curve
Scenario:
Ms. Concepcion always purchases Mcdo fries and sundae every after her Micro Economics
class.

Units Total Marginal

(McDo Utility Utility
Purchases)
0 0 NA
1st Large Fries with 10
Sundae
2ND Large Mcdo Fries 18
with Sundae
3rd Large Mcdo Fries with 23
Sundae
4th Large Mcdo fries with 25
Sundae
5th Large Mcdo fries with 25
Sundae
 Units Total Marginal
(McDo Utility Utility
10-0 10
MU= 10
Purchases) 1-0 0
0 0 NA
1st Large Fries with 10
Sundae
2ND Large Mcdo Fries 18
with Sundae
3rd Large Mcdo Fries 23
with Sundae
4th Large Mcdo fries 25
with Sundae
5th Large Mcdo fries 25
with Sundae
 Units Total Marginal
(McDo Purchases) Utility Utility

0 0 NA

1st Large Mcdo Fries with Sundae 10 10

18 8
2ND Large Mcdo Fries with Sundae

23 5
3rd Large Mcdo Fries with Sundae

4th Large Mcdo fries with Sundae 25 2

5th Large Mcdo fries with Sundae 25 0

 Units Total Marginal
Utility
(McDo
Utility
Purchase
s)

0 0 NA
25

1st Large 10 10
TOTAL UTILITY
Fries with
Sundae 23 TU

2ND Large 18 8
Mcdo Fries
with
Sundae 18
3rd Large 23 5
Mcdo Fries
with 10
Sundae

4th Large 25 2
Mcdo fries
with
Sundae 0
5th Large 1 2 3 4 5
Mcdo fries
25 0
with Units
Sundae
 Units TotalTotalMargi
Units Marginal
Utility
(McDo nal
Utility
Purchase Utility Utility
s)
1st
Large
10 10
Fries
with
y
Sundae
10
0 0 NA

MARGINAL UTILITY
2ND
Large
18 8
1 st Large
Mcdo
10 10
Fries with
Fries 8
with
Sundae
Sundae

3 Large
2ND
rd

LargeFries
23 18 5 8
Mcdo
Mcdo
with 5
Fries
Sundae
with
Sundae
3 Large
rd
23 5
Mcdo Fries
4th
with
Large
25 2
Sundae
Mcdo 2
fries
4with
th Large
25 2
Mcdo fries
Sundae
with MU
Sundae
5th 0
Large
25 0
5th Large
Mcdo 1 2 3 4 5
Mcdo
25 0
fries fries
with
with
Sundae
Units
Sundae
 Units Total Marginal
Utility
(McDo
Utility
Purchase
s)

0 0 NA

1st Large 10 10
Fries with
Sundae

2ND Large 18 8
Mcdo Fries
with
Sundae

3rd Large 23 5
Mcdo Fries
with
Sundae

4th Large 25 2
Mcdo fries
with
Sundae

5th Large 25 0
Mcdo fries
with
Sundae
 After 4th purchase
of fries and sundae
Satisfaction:
1st to 2nd purchase of 3rd to4th purchase Dissatisfied
fries and sundae of fries and sundae

Satisfaction: GOOD Satisfaction: LESS

 Assumptions of the Law
> All
the units of a commodity must be same in all
respects

The unit of the good must be standard

> Thereshould be no change in taste during the process

of consumption

> There should be no change in the

price of the substitute goods

> Tastes, preferences, fashion remain unchanged

> There
is no time gap between
consumption.
 Law based upon 3 facts
1.) The wants of a 2.) Different goods are
3.) There is no
man are unlimited not substitutes for each
other in the satisfaction change in the
but single want of various particular taste of the
can be satisfied. wants. consumers
PREPARED BY: PAULINE JOY BOLANIO
• Indifference Curve
 Shows combination of two goods that give
the consumer equal satisfaction and quality.

• HIERARCHY OF
INDIFFERENCE CURVE
• Consists of infinite indifference curves
as there are infinite levels of utility.
Hierarchy of indifference curve
 Contains infinite points of
combinations of commodity items that
a particular budget can buy at given
prices.
PREPARED BY: JAZZER IGNACIO
 BUDGET LINE
 Also called as Budget Constraint shows all the
combinations of two commodities that a consumer ca
afford at given market prices and within the particular
income level.
 BUDGET LINE
 Describes the limits to consumption
choices and depends on a consumer’s
budget and the prices of goods and
services.
Example
 Pedro has a ₱80.00 a day to spend on 2
goods : Softdrinks in can and a junk food.

 The price of softdrinks is ₱20 per can.

 The price of junk foods is ₱10 pesos per
pack.
Question:
 Pedro’s income ₱80.00
 Prices: Softdrinks- ₱20.00/can
Junkfood- ₱10.00/pack

A. If Pedro uses all his money to buy a softdrinks in can, how

many can he can buy from his money?
A. ₱80.00/ ₱20.00
= 4 cans of softdrinks.
B. If Pedro spends all his money on junkfood, How many
junkfoods he can buy?
B. ₱80.00/ ₱10.00
= 8 packs of junkfoods.
 Pedro has a ₱100.00 to spend to buy his snacks: Softdrinks and Junkfoods.
Softdrinks- ₱50.00 Junkfoods- ₱20.00
Possibilities Softdrinks Junkfoods Junkfoods per pack
(can per (packs per
day) day)
10
A 0 8
8
B 1 6
6

C 2 4 4

2
D 3 2

0
E 4 0 1 2 3 4 5

Softdrinks per can

PREPARED BY: CHARLOTTE ALDAY
 All factors of production can be varied. The profit
maximization firm will choose the least cost
combination of factors to produce at any given level of
output.
Refers to the combination of factors with which a firm
can produce a specific quantity of output at the lowest
possible cost.
Firm can vary the amount of factors which it uses for
the production of goods.
No. of Worker Total product or output
per day

1No. of workers 26 per

Total Product or Out
day
0 0
2 54
1 26
2 54
3 84
3 84
4 112
4 112
5 137
6
5 137

6 158

7 161
 or it simply subtract the sub 1
output per day to sub 2 output per day over
sub 2 number of labor subtract of sub 1
numbers of labor
Or price of the product multiply by quantity of the product
Iso means equal and quant means quantity.
Therefore, an isoquant represent a constant quantity of
output. Isoquant also know as Equal Product Curve
 Line is an important component when analysing
producer’s behaviour. The isocost line illustrates all the
possible combinations of two factors that can be used
at given costs and for a given producer’s budget.
 Tc= 16

Tc= 10