Consumer Choice Theory

When consumers demand too much this tells producers what goods and services to produce and how much. Price is a signal to producer and consumers. Resources are allocated efficiently in a market economy. Both consumers and producers exhibit maximize behavior. Meaning consumers want to maximize satisfaction, and business want to maximize profit. By evaluating at the margin they do this. Merrill Mathews “Margin cost is defined at how much each unit costs to produce. The marginal decision rule is when an employer tries to determine whether or not adding the additional cost if needed.”

According to Ashley Lassen, “The problem was not to find out about the date. But to find the difference reverence to the date itself.” Businesses turned to computer businesses for help. Randall Horton “When companies addressed the Y2K scenario, they had to ask how much they were willing to spend to fix the computer problem and brought in the experts to address it.” Companies did this because the marginal benefit exceeded the marginal cost. “The cost was addresses a couple of ways. They took people that were earmarked for new projects to have a passive role.” Randall Lassen “Parkland employees had not been taken off the job, but contributed in assisting in the effort,” says Ashley Lassen. Ashley Lassen “The y2k bug was going to cost about 600 billion dollars in preparation.”

As the year 2000 approached some overseas companies became the ones to fix the problem. No one could say what the changes of the new millennium might bring until it came.

“The year 2000 became a successful event, nothing happened. I do no think the Y2K bug was over blown and it needed to be addressed.” States Ashley Lassen. Economists assume consumers will continue to maximize utility. It is pleasure and gratification. But the more we get the less it pleases us. In order to minimize losses and ensure Y2K compliance, business turned to computer experts for help. “The main question they now faced was the cost. When companies addressed the Y2K scenario, they had to ask themselves the question: How much are we willing to spend in order to address this issue? Most companies looked at this, tried to come up with a figure they felt was reasonable to try to address the computer problem and brought in the experts and the software to address it” says Matthews. Business allocated resources to fix the Y2K problem because the marginal benefit exceeded the marginal cost.

Some overseas companies expected government to be responsible of fixing the millennium bug. In the United States, most companies had a profit incentive to correct Y2K computer problems without government intervention. Their choices were clear, but nobody could predict what changes the first day to the new millennium might bring until it finally dawned. When the new year of 2000 occur nothing really happen, and that is good news. Economists assume consumers will attempt to maximize utility.

But what is utility? It is a concept that is difficult to measure, but one which everyone experiences. It was call pleasure, satisfaction or gratification; it is what we all want more of. But the more we get, the less it please us. According to Harry Ellis, an economist says that utility is another term for satisfaction, and total utility is just total satisfaction. Utility is the total amount of satisfaction that a person receives from consuming a product, a good or a service.

As more and more of a product is consumed, utility, total utility rises but by smaller and smaller amounts.
For the substitution effect, as the price of a good rises, the quantity demanded of that good falls because it is relatively more expensive compared to other goods or substitutes. This is known as “the substitution effect.”

“A market demand curve is derived by summing horizontally the individual demand curves. That is, at each price the quantity demanded by each person in the market is added together” says Ellis. Business determine what customers want by looking at the taste and preferences of their customers, what is popular, what sells, past history, market surveys.

Business must be very concerned with their cost structures and trying to minimize their costs as far as production to earn greater profits. The minimization of costs producing those items that desired by consumers at the least cost possible that allocates resources most efficiently. This is done to try to satisfy everyone.

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