Question

What are the assumptions on which psychological law of consumption is based?

Answer 1

1. Constancy in Psychological- Institutional Complex: Consumption behavior remains stable in the short period. This means that the psychological and institutional factors influencing consumption do not change suddenly.
2. Normal Conditions: The law assumes that the economy is operating under normal conditions. Abnormal conditions like war, inflation, or deflation are considered nonexistent or irrelevant for the law's applicability.
3. Rich Capitalist Economy based on Laissez-faire: The law holds true in a capitalist economy with minimal government interference. The environment assumed is one where markets operate freely.