Consumer behavior is the actions of a consumer in a market system. Without a consumer, there would be no reason to produce anything. By studying how consumers behave and make decisions, we can learn how to understand markets and how to make better functioning markets. On top of that, we cannot even begin to learn about economics without understanding consumer behavior.

In order to understand consumer behavior, we need to first understand demand. Consumers have things they want, whether it is goods or services. That is defined as a demand. By making their demands known, a producer can then create the things or provide the services. Thus providers know what goods to supply.

Consumers use goods to satisfy their needs and desires. We measure the amount of pleasure a good brings to a person as utility. Rational consumers will try to maximize their total utility at all times. Marginal utility is the cost of each additional unit you by. When the marginal utility is less than 0, the god has reached its optimal utility. This is called the law of diminishing marginal utility. Utilizing this, we can figure out a way to mark and track how a consumer shapes their demands and utilizes their purchasing power.

Why would it be important to understand how and why consumers act the way that they do? By analyzing consumer patterns. You can better understand changes in an economic system, and can make adjustments to ensure that the system runs smoothly and efficiently. For example, if the price of a good is set too low, consumers will consume more of it than producers are able or willing to create. This causes an issue with supply, as well as a lack of incentive for companies to produce a good. We know that consumers will buy less as prices increase. However, if the prices aren’t increased by too much, the market will still be beneficial, and will reach the maximum utilization for all parties involved.

A couple of examples from the book are property crimes and medical care. As the societal price of crime goes down, more people will commit crimes. If we increase the cost of crime, by making punishments harsher but also making it harder to commit by increasing security technologies, then crime should go down. For medical care, since the cost is handled mostly by insurance companies, people are willing to spend more on their medical care, as the marginal utility is low. Although that is the point of insurance, it has contributed to the rising cost of healthcare.

In conclusion, it is important to be able to understand consumer behavior. By leaning how a rational consumer makes decisions, we can make important economic decisions. We are able to better understand and control markets, and can make sure they are equitable and efficient for all parties.