Determine the theory of consumer behaviour, Managerial Economics

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Theory of consumer behaviour

The role of customers in an economy is of significant importance because consumers spend most of their incomes on services and goods produced by firms. Consumers consume what firms produce. So study of the theory of consumer behaviour is accorded importance. It is keen to know the ultimate objective of a consumer. Economists have an optimisation model for consumers that is analogous to which applied to producers or firms. Though it's presumed that firms attempt at maximising profits, likewise there is an assumption that consumers attempt at maximising their satisfaction orutility. Though more services and goods provide greater utility to a consumer, though, consumers, like firms, are subject to constraints. Their choices and consumption are limited by a number of factors, comprising the amount of disposable income (residual income after income taxes are paid for). A consumer's choice to consume is defined by economists within a theoretical framework generally termed the theory of demand. 


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