Consumer demand theory explains how consumers choose to allocate their spending among different goods and services. Consumer demand theory is based on the concepts of utility and marginal utility, which describe how much satisfaction consumers derive from each additional unit of a particular good or service. Consumer demand theory also considers the factors of income, prices, and preferences, which interact to determine how much of a good or service a consumer will demand.
Utility and Marginal Utility
Utility is a metric that describes how much satisfaction consumers derive from goods and services. Utility is subjective, meaning that it is based on the individual preferences of the consumer. Marginal utility is the change in utility that is derived from consuming one additional unit of a good or service. It is important to note that, as more units of a good or service are consumed, the marginal utility decreases.
Income is an important factor to consider in consumer demand theory. As income increases, consumers are able to purchase more goods and services, and the demand for those goods and services increases. Conversely, when income decreases, the demand for goods and services decreases.
The prices of goods and services also play an important role in consumer demand theory. When prices of goods and services increase, demand for them decreases. Conversely, when prices of goods and services decrease, demand for them increases.
Preferences are another factor that affects consumer demand. Consumer preferences are based on individual tastes, and they play an important role in determining how much of a particular good or service a consumer will demand.
- What is the relationship between price and demand?
- What is the law of diminishing marginal utility?
- How does income affect consumer demand?
- How are consumer preferences determined?
- What are the components of consumer demand theory?
- What is the difference between utility and marginal utility?
- What is the role of prices in consumer demand theory?
- What is an example of consumer demand theory?
- How does demand change when prices change?
- What factors influence consumer demand?