Topic 1 - Intro

Question 1

Consumer Sovereignty

Answer 1

the customer is the ultimate boss of the firm. It cannot stay in business if it doesn’t satisfy its customers.

the ability and freedom of customers to choose from a range of different goods and services.

Question 2

Characteristics Theory:

Answer 2

The theory that demonstrates how consumer choice between different varieties of a product depends on the characteristics of these varieties, along with the prices of the different varieties, the consumer’s budget and the consumer’s tastes.

Question 3

Characteristics Theory is based on four key assumptions:

Answer 3

1. All products possess various characteristics.
2. Different brands possess them in different proportions.
3. The characteristics are measurable. Hence they are objective.
4. The characteristics, along with price and consumer’s incomes, determine choice.

Question 4

Limitations of Characteristics Approach to Analysing Consumer Demand

Answer 4

1. It is difficult to measure characteristics in a clear and unambiguous way. What is visual appealing depends on the personal tastes of the consumer and personal tastes are virtually impossible to quantify.
2. Most products have more than two characteristics.
3. Indifference curves have practical limitations.
4. Consumers tastes change are difficult to predict.