According to economic theory, the buyers are assumed to be rational in their decision making. They follow the law of marginal utility. Consumers evaluate the alternatives available & they choose the alternative which would provide them with highest utility & lowest cost. Consumer allocates his/her expenditure over different products at given price so as to maximize utility. Thus, the law of eque-marginal utility enables him/her to secure maximum utility from limited purchasing power. The purchasing decision is based on economic calculation & reasons.

The Economic Model, one of the oldest models of Consumer Behaviour tries to explains what a person is likely to buy and in what quantity. This model takes into consideration the behaviour of an economic man, who would give foremost importance to the monetary or financial considerations while making a decision. The ultimate objective of an individual, as per this model, is the maximization of satisfaction by investing the minimum money resources for the satisfaction of needs and wants.

Despite having certain limitations, it is one of the widely used models of consumer behaviour and is a must know for all the students of marketing and business management.

Economic model of consumer behaviour is un-dimensional. The following presumptions are made about buying behaviour.

• Lower the price of the product, larger will be the quantity bought- price effect.
• Higher is the purchasing power, higher will be the quantity- Income effect.
• Lower the price of a substitute product, lesser the quantity that will be bought of the original product- substitution effect.
• Higher the promotional expenditure higher will be the sales Communication effect.