Microeconomics: Consumer Demand Theory

Topic: Economics
Words: 1008 Pages: 4

Properties and Characteristics of the Theory

With the unlimited nature of human wants, consumers are tasked with making decisions on how to acquire commodities and services at favourable market prices. The theory bases its arguments on the law of diminishing marginal utility; it gives vivid clarification on why a demand curve has a negative slope, as well as description for the law of demand. Basing its principles on the consumption of goods and services, consumer demand theory analyzes moves that consumers make in the market and their perceptions. According to Browning and Zupan (2006), the theory explains how consumers purchase different products, how they allocate their finances in readiness for purchases, and how prices of different commodities influence their decisions. In studying this theory, it is necessary to expound on other aspects by analysing the Cardinalist Approach and Ordinalist Approach.

The scarcity and different intensity of human wants force consumers to make decisions on how to meet some of the needs. With the scarcity of resources, it is impossible for human beings to satisfy all their needs. Additionally, consumers have limited resources at their dispensation making it difficult to exchange them for all the desired commodities (Mirowski & Hands, 2006). This forces them to make choices, which will satisfy their immediate and urgent needs. For example, a thirsty person will purchase coca-cola to quench his/her thirst, instead of going for tea. In this situation, immediate satisfaction does not come from tea; therefore, he/she forego tea for coca-cola. This reveals the aspects cardinal utility analysis in consumer demand theory. Since consumers cannot satisfy all their needs, they have to make choices with the aim of purchasing the trivial products or services later. Jevon (1835-1882) introduced the concept of utility to gauge the level of satisfaction that consumers derive from different products and services. Utility is a product’s power to meet the needs and wants of consumers (Goldberger, 1987). The subjective nature of utility shows how satisfaction differs from one consumer to another. A product like wine can have high utility for those who drink, but for non-drinkers it has no utility. Utility reveals the subjective satisfaction that human beings get in using products and services. From the analysis, utility has two opposing continuums.

The Theory’s Influence on Actions and Interactions of Individual Actors

Since the times of Adam Smith, demands in a market depend on the levels, at which consumers satisfy their needs and wants. According to William Stanley Jevons, consumers buy goods and services in order to make the ratio of prices equals the ratio of marginal utilities (Mirowski & Hands, 2006). Actors in the economy study the rate of demand of products, and move to balance the demand by supplying more commodities. From the law of diminishing marginal utility, the level of satisfaction of a given product decreases with the continuous consumption of the product (Goldberger, 1987). Actors like producers can use this theory to maintain product’s satisfaction by being innovative in their future production. For example, producers can supply different brands of their products or include incentives in their service-provisions so that consumers continue to demand their products or services. A case example is the production of plastic drinks by the soft drink and beverage companies, Pepsi and Coca-Cola. Consumers had been consuming their products from glass bottles, and through innovation, they came up with the portable plastic bottles. This has seen continuous satisfaction from consumers, which has been reflected in their high profit margins every financial year. Individual actors in the economy also have to study the nature and trend of demand for different products. In the wines industry, for instance, if a given a brand offers more satisfaction to consumers than another, then firms resort to produce more of the most trending brand, and embark on ways of advertising the weak brand (Asamoah, 2003). The value that consumers put on different products directs manufacturers and suppliers to devise means of enticing consumers to use other products. In this situation, research and development becomes necessary to unearth reasons for a product’s level of consumption. Studying consumer behaviour is vital for all actors in the economy. In addition, employers can use the theory to study labour supply so that they can hire workers at their desired wages. This is acquired from the trade-off analysis of leisure and labour activities.

The Theory’s Effects on Consumers’ Actions

Consumer demand theory influences consumers’ decisions to purchase a product or go for its substitute. In line with the indifference curve analysis, consumers can be faced with approach-approach demand, in which they feel to acquire two commodities, but due to budget constraints, they opt for one (Salvatore, 2003). In case a consumer decides to purchase the two products at ago, he/she will take fewer quantities. Consumers make decisions on how to substitute a product or service in order to maintain satisfaction levels. This theory may assist me, as a consumer, to compare the levels of satisfaction that different products or services have, thus assisting me in making prudent decisions that are satisfactory.

Strategies of the Theory in Developing HRM’S Profession

In my Human Resource Management’s (HRM) profession, consumer demand theory can assist me to analyse different budget lines to show the amount of goods a consumer can purchase. In this aspect, I can direct the production department to tailor products that meets the needs of consumers. In the service industry, the theory can assist me in employing creative and innovative workforce to offer quality services to our clients. The dynamic and global market requires deep understanding of consumer behaviours towards different products and services (Salvatore, 2003). In comprehending a consumer’s ability to buy a product based on his/her income level, as a manager, I will be in a good position to supply almost exact amounts of products that consumers in specific geographical locations will purchase. In producing goods and services that give consumers the highest level of satisfaction, a company develops a strong customer loyalty. The study of consumer behaviour and the law of demand help businesses to record sustainable growth.


Asamoah, E. (2003). An Overview of the Theory of Microeconomics (Consumer Behaviour and Market Structures) in Fast Food Marketing. Journal of Consumer Research, 17(4), 492-508.

Browning, E. K., & Zupan, M. A. (2006). Microeconomics: Theory & Applications (9th ed.). Hoboken, NJ: Wiley.

Goldberger, A. S. (1987). Functional Form and Utility: A Review of Consumer Demand Theory. Boulder: Westview Press.

Mirowski, P., & Hands, D. W. (2006). Agreement on Demand: Consumer Theory in the Twentieth Century. Durham: Duke University Press.

Salvatore, D. (2003). Microeconomics: Theory and Applications (4th ed.). New York: Oxford University Press.

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