THEORY OF CONSUMER BEHAVIOUR

 Law of Demand: The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded increases, and vice versa. This principle helps explain how consumers respond to changes in price.

Substitution Effect: When the price of a good increases, consumers may choose to substitute it with a similar but cheaper alternative. This substitution effect influences consumer behavior and purchasing decisions.

Income Effect: Changes in income can also impact consumer behavior. When income increases, consumers may choose to buy more goods and services (normal goods) or fewer goods and services (inferior goods), depending on the type of good.

Consumer Surplus: Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they actually pay. It represents the additional benefit or satisfaction that consumers receive from consuming a good beyond what they had to pay for it.

Elasticity of Demand: Elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. Understanding elasticity helps predict how consumers will react to changes in price and income.

Consumer Preferences and Trends: Consumer behavior is also influenced by factors such as advertising, marketing strategies, cultural norms, and societal trends. These influences shape consumer preferences and can impact demand for specific goods and services.

Rational Choice Theory: Rational choice theory suggests that consumers make decisions that maximize their utility, given their preferences and budget constraints. However, consumer behavior may not always align perfectly with this theory due to factors like bounded rationality and psychological biases.

Understanding these key points about consumer behavior is essential for economists, marketers, and policymakers alike, as it provides insights into how individuals make choices in the marketplace and how markets function as a result.