ABSTRACT
Chapter 2 analyzes the behavior of consumers and industrial buyers. The factors that affect demand are: (i) price – buyers purchase more at lower prices; (ii) consumer income – higher incomes increase the demand for normal products and reduce the demand for inferior products; and (iii) the prices of related products – demand increases if the price of substitutes is higher, but decreases if the price of complements is lower. Business demand for inputs depends on the output of the item being produced. Buyer surplus is the difference between the buyer’s total benefit and actual expenditure. Package deals and two-part pricing are pricing strategies that extract the buyer surplus.
