Business Plan of Jollibee

R. Larry Reynolds

Demand and Consumer Behavior

D

emand is a model of consumer behavior. It attempts to identify the factors that influence the choices that are made by consumer. In Neoclassical microeconomics, the objective of the consumer is to maximize the utility that can be derive given their preferences, income, the prices of related goods and the price of the good for which the demand function is derived. An individual’s demand function can be thought of as a series of equilibrium or optimal conditions that result as the price of a good changes. There are two approaches that may be used to explain an individual’s demand function; utility analysis and indifference analysis. The two approaches are compatible.

A. Consumer Choice and Utility

U

tility is the capacity of a good (or service) to satisfy a want. It is one approach explain the phenomenon of value. Utilitarianism is the ethical foundation of Neoclassical microeconomics. Jeremy Bentham [1748-1832] formalized “utilitarianism.” Utility is a subject evaluation of value. Bentham seemed to intuitively grasp the notions of total an marginal or incremental utility. However, it was not until 1844 that Dupuit [1804-1866] linked marginal utility to the concept of demand. Heinrich Gossen [1810-1858] developed the “law of satiable wants” which is considered to be a forerunner of the “law of diminishing marginal utility. In 1871 William Stanley Jevons [1835-1882] used the term “final degree of utility” and Carl Menger [1840-1921] recognized that individuals rank order their preferences. It was Friedrich von Wieser, [1851-1926] who first used the term “marginal utility.”

(1)

Utility Since utility is subjective and cannot be observed and measured directly, it use here is for purposes of illustration. The objective in microeconomics is to maximize the satisfaction or utility of individuals given their preferences, incomes and the prices of goods they buy. a. Total Utility (TU) and Marginal...