You may have heard of “The Economic Man”, he is a mythical individual who carefully calculates what he should buy
before he spends his money comparing the satisfactions obtainable for every peso he will spend before he will depart from his hard earnings. Some of us don’t operate this way, and everyone knows it. A lot of our spending sometimes based on habit, and some on impulse. The less money we have, the greater the pressure to act in a careful calculating way. We must have to calculate how to divide up our incomes among the things we want to buy. If most people act consistently most of the time, avoiding erratic (irregular not conforming to rules) changes in buying behavior and generally choosing their most preferred goods, our scientific theory will provide a reasonably good approximation to the facts. We must be alert to situations where irrational or inconsistent behavior tends to crop up. Demand. It is the desire to possess combined with the ability to purchase. The desire must be backed up with the money that the consumers are willing to spend on the goods or commodity that is brought at a certain price at a given place and time. A table that reflects the maximum quantities of given good or resources purchased by consumers at various market prices is called a demand schedule while supply is the amount of commodity offered at a certain price at a given place and time or available for meeting a demand. Each day involves endless decisions about how to allocate our scarce money and time. Should we eat breakfast? Should we spend our income or should we save it for the future? Should we sleep late? Should we visit our friends? Should we buy new car or should we just fix the old ones? These are some of the questions that we encounter in our daily life. As we balance competing demands and desires we make choices that define our lives. We must not forget that our physical existence depends on our careful allocation of scarce resources. Consumers are powerful, sometimes capricious, (unpredictable) monarch. Producers are always tempted to produce goods which consumers are willing to pay a price that will cover the total cost of production plus a profit. In economics, demand does not mean mere need or desire. It is, rather, a desire for a particular goods backed up by sufficient purchasing power. The desire must be backed up with the money that the
consumer is willing to spend on the goods or commodity. How much a consumer will buy and what price he will be willing to pay depend on a number of factors like: income, tastes and preferences, prices of other goods and others. In our economic system, one of the major objectives why a businessman is in business is to make profit and of course to serve the buying public. He can make profits only by producing goods and services that the people want to buy. It is the consumer who is willing and able to buy who directs production. Consumer directs it by the way he spends his money, the way he allocates his income among different goods and services. Consumer demand is the mainspring of economic activity. Consumers are most likely to buy more goods and services as price decreases, and buy less goods and services as price rises. The behavior of the consumers can be explained by two reasons. First, it is because of the change in the amount of income. When there is much money, with lower price of goods, greater purchasing power. Second, there are commodities that have good substitute. When the prices of goods that consumers used to purchase increase they tend to look for similar products whose prices are lower. It is common to classify a product but this does not mean that everyone treats the product in the same way at all income levels. Consumers respond differently to a given price cut. Why? It is because a consumer faces limitations in his quest for maximum satisfaction. The limitation may be on: (1) Income. An increase in income tends to increase the amount we are willing to buy of most goods. (2) Price of the goods he prefers. A higher price for a good reduces the consumer’s desired consumption of that good. (this shows why demand curve slopes down) Sometimes, consumer’s choices can be affected by special influences like persuasive advertising. A fall in the price of a good has two effects: (1) Consumers enjoy an increase in real purchasing power; they are better off because they can buy the same amount of good for less money and thus have money left over for additional purchases. (2) They will consume more of the goods that have become cheaper and less of those goods that are now relatively more expensive.