Consumer Demand Theory
                     CONSUMER 
DEMAND THEORY
INTRODUCTIO
N
Consumer demand theory 
provides insight into an 
understanding market 
demand and forms a 
cornerstone of modern 
microeconomics. 
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CONSUMER 
BEHAVIOR
In particular, this theory 
analyzes consumer behavior, 
especially market purchases, 
based on the satisfaction of 
wants and needs (that is, 
utility) generated from the 
consumption of a good.
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DEMAND
Demand, the willingness and 
ability to purchase a range of 
quantities at a range of 
prices, is one half of the 
market.
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THE LAW OF 
DEMAND
The law of demand, which 
gives rise to a negatively-
sloped demand curve, is an 
essential principle underlying 
market analysis. 
Modern microeconomic 
theory, among other topics, 
is concerned with 
understanding and 
explaining the law of 
demand.
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UTILITY
A basic formulation of 
consumer demand theory 
involves an analysis of the 
total utility and marginal 
utility derived from the 
consumption of a good.
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THE FOCAL 
POINT
The focal point of utility 
analysis is usually a table of 
the total and marginal utility 
generated by consuming 
different quantities of a 
good, such as the one 
displayed in the exhibit to 
the right.
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The Law of 
Diminishing 
Marginal 
Utility
The law of diminishing 
marginal utility states that 
marginal utility, or the extra 
utility obtained from 
consuming a good, 
decreases as the quantity 
consumed increases.
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UNDERSTANDI
NG OF 
MARKET 
DEMAND
Consumer demand theory is 
primarily directed toward an 
understanding of market 
demand and the law of 
demand. 
However, it provides a great 
deal of insight into all sorts 
of human behavior and 
activities.
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LABOR SUPPLY
Insight into the quantity of 
labor that workers are willing 
to supply at different wages 
can be obtained with 
consumer demand theory by 
analyzing the tradeoff 
between labor and leisure 
activities.
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HOUSEHOLD 
PRODUCTION
In a similar manner, insight 
into the amount of work 
performed around the house, 
without explicit 
compensation, be analyzed 
using consumer demand 
theory.
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