Tuesday, 15 November 2011

How Economists learnt to differ between goods..

The old approach to consumer theory involved removing the intrinsic properties of the goods so that what was special in the good was lost.However in reality if we see the reaction of market researchers, advertisers and even text books there is a specific concentration on the features of the goods.For example why do text books take pen and pencil, specifically as substitutes or shoes and shoe laces specifically as complements, there must be something special in the characteristics of these goods.
The new approach introduced by Lancaster-suppose it is not goods directly from which utility is derived but it is characteristics, ie consumption as an activity with output of characteristics as an  output vector and input of goods singly or in combination as an input vector defining a ;linear programming problem.
A Dinner party, a combination of a meal and a social gathering will have nutritional, aesthetic and intellectual characteristics different from a meal and social gathering considered seperately.
Even a single good will have 1+ characteristics.Goods which may be unrelated in certain characteristics may be related in certain other characteristics like aesthetics.
Goods per se don't give utility, characteristics give utility.
So in summary-1)Goods will have more than one characteristics,2) many characteristics are shared by more than one good, 3)goods in combination may have characteristics different from goods seperately.
A Gray maruti and a red maruti were in the earlier approach considered either different goods or the same good, ignoring their properties as substitutes or the feature of colour.
In this case in the new approach the two marutis are considered having satisfaction vector which differs in only one context-colour.

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