Want to Boost Sales? Understand 'The Consumer' in Microeconomics!
What Is Consumer Theory?
Consumer theory is the study of how people decide how to spend their money based on what they want and how much money they have. Consumer theory is a part of microeconomics that looks at how people decide what to buy based on how much money they have and how much things cost.
Understanding how consumers act makes it easier for sellers to predict which of their goods will sell the most and helps economists get a better handle on the "invisible hand," or the unseen forces that shape the economy.
Understanding Consumer Theory
People are free to pick from different packages of things and services. Consumer theory tries to predict what people will buy by making three basic assumptions about how people act:
Utility maximization: When buying, people are said to make smart choices and buy the things that give them the most benefit, or what economists call a "maximum utility."
Non-satiation: People rarely get what they want from one trip to the store, and they always want to buy more.
Decreasing marginal utility: Consumers lose satisfaction with a product the more they consume it.
Consumer theory usually needs the following to work through examples and/or cases:
A full set of consumption options
How much use a customer gets out of each bundle in a set of options
A list of prices for each package.
Advantages of Consumer Theory
It's important to learn more about people's likes and incomes because they have a big effect on the demand curve, which shows how the price of a good or service affects how much of it people want at a given time, and on the shape of the economy as a whole.
A big part of the United States' gross domestic product (GDP) comes from what people pay. If people buy less, demand for goods and services will go down. This will hurt company income, the job market, investments, and many other things that keep the economy going.
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