Determinants of Demand

We can approach the challenge of modeling consumer behavior in a more practical manner that is informed by the theory of the consumer. To estimate demand and study the nature of consumer demand, we start by identifying a set of key factors that have a strong influence on consumer demand.

Probably the most important influencing factor is one we considered for the ice cream business in chapter 2—the price of the item itself. Price is also the key determinant of demand in the theory of the consumer. In the simplest cases, there is a single price that applies to any item or unit of service being sold. However, as we will discuss later in the section on price discrimination, prices may vary depending on who is buying it and ...

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