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Microeconomics Presentation

Consumer Behavior and the Dependence EffectThe Non Sequitur of the "Dependence Effect"

Yuhan Yang

on 29 August 2012

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Transcript of Microeconomics Presentation

"Dependence Effect" Consumer Behavior and the Dependence Effect The Non Sequitur of
the "Dependence Effect" Two propositions:
The urgency of wants does not diminish appreciably as more of them are satisfied.
The wants originate in the personality of the consumer. Conventional wisdom

Pain of hunger > Pain of envy? An individual's wants cannot be urgent if they must be contrived for him. Wants Production The needs of "the second class" - Keynes:
"those that are the result of efforts to keep abreast or ahead of one's fellow being" (Emulation) Modern advertising and salesmanship

Outlays for the manufacturing of a product

Production of goods Creation of the desire for the goods Conclusion: Wants Production

Passively: suggestion & emulation
Actively: advertising & salesmanship create depend John Kenneth Galbraith
The market power weakened the principle of consumer sovereignty
Corporation: price taker price maker
Private sector (conmercial goods and services) vs. Public sector (infrastructure)
Consumption/ sale taxes on private sector goods John Kenneth Galbraith Keynesian & institutionalist
The Affluent Society (1958):
Poverty Affluence
Classical theory New theory
Wants originate in the personality of an individual

A large amount of wants are created by the process of satisfying other's wants These wants are not urgent or important Agreed: We would not desire any of the amenities of civilization if we did not live in a society which others provide them.
Disagreed: To say that a desire is not important because it is not innate is to say that the whole cultural achievement of man is not important. One man's consumption becomes his neighbor's wish. "Absolute" needs: wants that are independent of social environment or of the example of others. Arts would not be needed if they were not produced.


Arts are not urgent or important, they are of small value. Obscurity of the wording

Seemingly plausible arguments
Production "determines" wants Prodoction "creates" wants

Wants are "determined" by production Wants "depend" on production The tastes, opinions, beliefs and much of the personality of a man are shaped in a great measure by his cultural environment.
(Production "creates" wants.)

Whether any individual producer suscceds persuading the consumer depends not only on the advertisment he makes, but also on what the others do and on a great many other influences operating upon the consumer.
( Production cannot "determine" wants.) Even though people are often persuaded to spend unwisely, this surely is no evidence that they do not still have important unsatisfied needs. Friedrich August Hayek Free-market capitalism
The Non Sequitur of the "Dependence Effect":
Criticize the "dependence effect" theory of John Kenneth Galbraith Concusion:
There is no direct link between the source of wants and their relative importance.
Producers and advertisers can influence wants, but cannot determine wants.
The obscurity of the using of words lead to ambiguity of the arguments. Thank you for your patience
Question? References:
John, Kenneth Galbraith. (1958). Consumer behavior and the dependence effect. The Affluent Society:http://netdrive.montclair.edu/~lebelp/GalbraithDepEffect1958.pdf
Friedick, A. Hayek. (1961). The non sequitur of the "dependence effect". Southern Economic Journal, 27
http://en.wikipedia.org/wiki/John_Maynard_Keynes F. A. Hayek:
Classical liberalism (limited government and liberty of individuals)
Free market (no economic intervention and regulation by the state) Argument 1 Argument 2 Argument 3
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