Economics, 3rd Edition

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hapters 3 and 4 have looked at the basic theory of markets and how magnitudes of change in demand 

and supply can be measured using the concept of elasticity. In the next two chapters we will look in 

more detail at how the demand and supply curves are derived. In this chapter we look in more detail at 

the behaviour of consumers.

In Chapter 3 we stated the law of demand which is that the amount consumers wish to purchase is 

negatively related to price. On the face of it this seems intuitive. Behind this law, however, is a model of 

how consumers behave which is dependent on a number of assumptions. We will begin by looking at this  

model, then look at some limitations of the model and how recent research is shedding new light on 

consumer behaviour and challenging this model.