Managerial Economics

Theory of the Consumer

Back in chapter 2, we used a demand curve to represent the relationship between the price charged for ice cream bars and the maximum number of ice cream bars that customers would purchase. We will address how to create a demand curve later in this chapter, but we will begin our discussion with a brief review of microeconomic theory that endeavors to explain how consumers behave.

A consumer is someone who makes consumption decisions for herself or for her household unit. In a modern society, consumption is largely facilitated by purchases for goods and services. Some of these goods and services are essential to a consumer’s livelihood, but others are discretionary, perhaps even a luxury. Consumers are limited in how much ...