Theory of Demand + Theory of Consumer Behavior

Theory of Demand: Demand =

the making of an offering

Theory of Demand:

The heart is the theory of consumer behavior

Theory of Consumer Behavior: Economists say people choose to act in order to increase their utility

Utility = whatever it is that motivates you to keep doing what you are doing

Theory of Consumer Behavior: There may be only one true law in economics: the law of diminishing marginal utility

The law says “the greater a person’s access to some good or service, the less is the utility that the person gets from any one unit of that good or service

Diminishing marginal utility: Less access =

higher marginal utility

Diminishing marginal utility: Greater access =

lesser marginal utility

The law of diminishing marginal utility is the groundwork

for the theory of demand

Law of demand =

• “The higher the price of a good, the lower the quantity demanded of that good”

• “The lower the price of a good, the higher the quantity demanded of that good”