Managerial Economics For Dummies

Chapter 5

Consumer Behavior: A Market for Anything?

In This Chapter

Understanding what makes your customers happy

Taking advantage of indifference

Developing promotions to influence consumer choice

Successful businesses satisfy consumer desires. Knowing how consumers decide which desires to satisfy and which to leave unsatisfied is an important component in your managerial decision-making. Consumer theory describes how customers determine the purchases they make. By understanding consumer theory, you can influence customer behavior through pricing strategies such as coupons and gift cards.

Satisfying the Consumer

A famous line from the movie Field of Dreams is “If you build it, he will come.” Well, that may have worked in the movie, but it doesn’t work for businesses — “produce it and they will buy” isn’t a certainty. Consumers compare the amount of satisfaction they receive from a good to its price to determin Take the partial derivative of the Lagrangian function with respecte whether or not it’s worth buying. Remember, ultimately the customer decides whether or not your product is a good deal.

Comparing apples and oranges: Utility as a common denominator

You’ve probably heard ...