Paper 1

Vladi Falk

Econ 380

Dr. Waters

Paper 1

Consumer Theory

Here is a joke: you raise my interest rate thirty basis points without a corresponding drop off in consumer enthusiasm. It’s only funny after it makes sense. However, in economics the law of demand is so intuitive that you may not even be aware of all the examples around you. Behind every supply and demand curve is a load of producers and consumers making their own decisions. Consumers are driven by their desires. Their decisions are made quite simply by those desires. And all consumers make those decisions to maximize their utility. Do these desires change? Are the consumers just as happy with same product, but from different providers?

Many aspects influence how one may shop. Income and prices are heavyweight contenders in being most prominent. In a recent Forbes article, a study showed that “consumer confidence [reached] its lowest point in history” just a couple years ago. This means that the people were not very optimistic about the general economic standing. Then what do retailers do to “encourage” the people to keep shopping? When demand is low and there is still plenty of supply, the according to the same article, many retailers from “Wal-Mart to Saks Fifth Avenue…are so desperate to rid themselves of inventory that they’re marking down some merchandise by 90%.” That is the Law of Demand.

So in contrast low prices can produce high demand especially with a limited supply. This sounds terrific, but in some cases lack of preparation can be a hindrance. The “Business Day” section from The New York Times recently published that a craze for a new, more-affordable fashion line from Target caused the supermarket’s website to crash. The small glitch is definitely repairable, but Target suffered some heavy damage to its reputation. “On Twitter and other social media sites, thwarted shoppers posted furious messages and commiserated about the site’s failure.” Target officials promised their shoppers a...