Consumer behaviour and demand

In this section, we will understand how the market demand curve for a consumer is linked to and based on the tastes and preferences of consumers in the market for his good. An analysis of consumer behaviour is significant as it forms the basis of individual demand which in aggregate constitutes market demand. Two theories of consumer behaviour have been taken into account to explain how the demand curve for a good is derived. The two approaches are:

(a)     Marginal utility analysis or cardinal utility approach, and

(b)     Indifference curve analysis or ordinal utility approach

Both the theories are important in their own right as a basis of downward Sloping demand curve. Perhaps their greater significance lies in building a mode) of rational choice. That is, an optimal decision made either by a consumer or a manager by a careful analysis of preferences and trade off's among available alternatives. The cardinal approach asserts that utility is quantitatively measurable like length and weight. While the modern theory or ordinal concept is based on ordering of preferences. The modern economists are of the view that utility cannot be measured in absolute terms, rather a consumer can only express his satisfaction in terms of 'less than' or 'more than' or rank his preferences. 

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