Testing of revealed preference hypothesis and expenditure pattern

The micro economic theories dealt with the relationship between prices, income and consumption. The empirical studies were conducted to test the economic theories from various angles. The earlier studies analysed the consumption expenditure without considering preference hypothesis. But according to Samuelson (1947), choice reveals the preferences of the consumers. His demand theory is based on the preference hypothesis. It means that the consumer chooses the bundle that is preferred from amongst all available bundles for a set of prices and expenditure (Molina 1996). Samuelson explained the observed consumer behaviour and utility maximization based on the strong ordering assumption. Strong ordering assumption means that there is definite ordering of various combinations in consumer's scale of preferences and therefore the choice of a combination by a consumer reveals his definite preference for that over all other alternatives open to him. Thus, under strong ordering, relation of indifference between various alternative combinations is ruled out (Ahuja, 2005). Only a very few studies included preference behaviour of the consumers in the analysis of consumption and utility maximization. Moreover, the studies did not analyse the expenditure of households under strong and weak ordering. Hence the present study tries to analyse the consumer behaviour under both strong and weak ordering. Moreover, the present study was based on consumption behaviour of college students. The consumption preferences of the college students were expected to have high variation depending upon the fashion, brands of the goods and the friend's expenditure. Hence the preference hypothesis was tested for the consumption behaviour of the college students. The preference behaviour of the students reveals that 66 percent of the students offered strong ordering for clothing, 74 percentage for cosmetics, 54 percentage for stationary items, 52 percentage for fast food, 61 percentage of food wear, 35 percentage for entertainment, 53 percentage for telecommunication and 57 percentage for transport. It revealed that more than 50 percentage of the students had preferred strong ordering for all items except for entertainment. The estimated consumption expenditure equation of the students, who preferred strong ordering shows that male education was statistically significant at 10 percent level to determine the consumption expenditure. The co-efficient of the male education in the family was positive. It reveals that the expenditure of the students who preferred strong ordering had increased with increase in the education of the males in the family. In the consumption expenditure equation of the students who preferred weak ordering, age of the students, religion, family income, education of the male and female in the family exhibited statistically in significant relationship with consumption expenditure.