CONSUMERS AND MARKET DEMAND

• INDIVIDUAL CONSUMERS AND HOUSEHOLDS ARE THE UNITS THAT MAKE

SPENDING DECISIONS AND THUS, DETERMINE THE QUANTITY DEMANDED
OF ANY GOOD OR SERVICE. (FISCHER, DORNSBUTCH, & SCHMALENSEE,
1988, 1983, P.101)
• MARKET DETERMINES THE PRICE AND QUANTITIES WHICH ARE BOUGHT BY
THE CONSUMERS.
MODEL OF CONSUMER BEHAVIOR
•THE MODEL OF CONSUMER BEHAVIOR THUS, MAKES IT POSSIBLE
TO DEDUCE THE INDIVIDUAL DEMAND CURVES FROM
INFORMATION ABOUT INCOME, PREFERENCES, AND THE PRICES IN
THE MARKET. IN ASSESSING MARKET DEMAND, RELATIVE PRICES
AND CONSUMER DECISIONS HAVE TO BE TAKEN INTO
CONSIDERATIONS.
GENERAL RULES APPLIED:
1. IN ORDER TO MAXIMIZE TOTAL UTILITY SUBJECT TO A BUDGET
CONSTRAINT, THE RATION OF THE MARGINAL UTILITIES OF ANY
PAIR OF GOODS MUST EQUAL THE RATIO OF THEIR PRICES. THIS
FOLLOWS A BASIC ASSUMPTION THAT WE BUY THINGS
ACCORDING TO OUR MEANS.
2. CHANGING ALL PRICES AND INCOME IN THE SAME PROPORTION LEAVES THE
CONSUMERS’ DEMAND FOR ALL GOODS UNCHANGED. THIS MEANS THAT REAL
INCOMES ARE IMPORTANT IN A CONSUMER’S DECISION-MAKING.

3. CONSISTENT PREFERENCE IS REVEALED BY THE MAJORITY CHOICES OF

CONSUMERS. HOWEVER, CONSUMERS ALSO LIKE VARIETY.
4. THE LAW OF DEMAND MUST ALWAYS HOLD FOR NORMAL GOODS. THE
INCOME AND SUBSTITUTION EFFECTS OF AN INCREASE IN THE PRICE OF A
NORMAL GOOD ARE BOTH NEGATIVE, SO THAT AN INCREASE IN PRICE MUST
REDUCE THE QUANTITY OF A NORMAL GOOD DEMANDED BY ANY CONSUMER.

5. CONSUMER SURPLUS IS THE DIFFERENCE BETWEEN THE MAXIMUM

AMOUNT A CONSUMER WOULD PAY FOR THE QUANTITY OF THAT GOOD HE OR
SHE DEMANDS AND THE ACTUAL AMOUNT PAID.
SOCIO-ECONOMIC IMPACT STUDY
•A SOCIO-ECONOMIC IMPACT STUDY ATTEMPTS TO DETERMINE
THE SOCIO-ECONOMIC CONTRIBUTIONS A BUSINESS CAN OFFER
IN A PARTICULAR LOCALITY. IT IS PREMISED ON THE
ASSUMPTION THAT ANY PROJECT OR BUSINESS CONTRIBUTES
TO THE SUCCESS OF THE ECONOMY.
CONSUMER BEHAVIOR
CONSUMER BEHAVIOR IS THE STUDY OF CONSUMERS AND THE
PROCESSES THEY USE TO CHOOSE, USE (CONSUME), AND DISPOSE
OF PRODUCTS AND SERVICES. IT INCORPORATES IDEAS FROM
SOCIAL SCIENCES TO INFORM ECONOMICS AND THE IMPACTS
THAT THESE PROCESSES HAVE ON THE CONSUMER, AND THE
SOCIETY.
 FOUR MAIN APPLICATIONS OF CONSUMER BEHAVIOR ACCORDING
TO LARS PERNER, PH.D.
• UNDERSTANDING CONSUMER BEHAVIOR IS ESSENTIAL MARKETING
STRATEGY—I.E., FOR MAKING BETTER MARKETING CAMPAIGN.
• BY UNDERSTANDING THAT NEW PRODUCTS ARE USUALLY INITIALLY ADOPTED
BY A FEW CONSUMERS AND ONLY SPREAD LATER, AND THEN ONLY GRADUALLY,
TO THE REST OF THE POPULATION, WE LEARN THAT (1) COMPANIES THAT
INTRODUCE NEW PRODUCTS MUST BE WELL FINANCED SO THAT THEY CAN STAY
AFLOAT UNTIL THEIR PRODUCTS BECOME A COMMERCIAL SUCCESS AND (2) IT
IS IMPORTANT TO PLEASE INITIAL CONSUMERS, SINCE THEY WILL IN TURN
INFLUENCE MANY SUBSEQUENT CUSTOMERS’ BRAND CHOICES.
•SOCIAL MARKETING INVOLVES GETTING IDEAS ACROSS
TO CONSUMERS RATHER THAN SELLING SOMETHING.
•STUDYING CONSUMER BEHAVIOR SHOULD MAKE US
BETTER CONSUMERS.