A review of household behavior and consumer choice based upon the micro-economic principles of supply and demand.
Written in 2009; 1,229 words; 4 sources; APA; $ 41.95
Paper Summary:
The paper discusses how the traditional economic model of household income and consumer choice is based upon the microe-conomic principles of supply and demand. The paper highlights that in this classical paradigm, household demand is made up of the two basic components of desire and ability. Ability to buy is based on the household's net income and desire is based upon the utility derived from the allocation of that income. The paper explains how utility "is a measure of pleasure or happiness." The paper further explains this phenomena by showing that utility diminishes with the quantity purchased and that a good example of this is that if we have high oil prices the resultant high food prices drive up the cost of living. As the price of gas goes up, demand for complementary goods, like gas-guzzling vehicles goes down, all resulting in a decrease of expendable income.
From the Paper:
"Although economists allow for certain modes of irrationality, such as the 'diamond' effect, or how scarcity drives up price and demand for a non-necessary good, in contrast to the lower price of water, consumer irrationality often exceeds such bounds. To take a non-U.S. example, in Japan, a country that used to be one of the most self-supporting economies on the face of the earth, today, "the typical Japanese breakfast today includes toast made from imported wheat, ham from pigs that eat imported grain and eggs from chickens that eat grain."
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