Academic Master

Business and Finance

Starbuck’s Theory of Consumer Choice and Frontiers of Microeconomics


The success of an organization relies on the state of the economy, especially in their unique field. Thus, market environment comprises of many economic and human factors. The choice individual makes before buying a product influences them to buy such products (McFadden, 2014). Hence, it is important to understand and identify human factor so that the firms may put in place strategies that will be productive and profitable. The theory of consumer choice implies the customer has full and transitive preferences and choose the products they want. In this sense, the Starbuck’s marketing department have interest in getting insights into how consumers make economic decisions.

Consumer’s choice influences the economic prosperity of a firm. For instance, in Starbucks, customers prefer branded coffee which has to enable the company makes profit. Therefore, the preference of the customer’s influences demands curve (Foxall, 2016). However, the curve may go down because of the high cost of the products. It can also arise when the prices increase. In this sense, the upward slope informs the company that the products they sell are perfuming well in the market demand regardless of the cost they are selling the product. Additionally, the higher wage for consumers implies they can afford higher luxury quantity (McFadden, 2014). Certain products are inferior, normal and substitutes while other are complementary. These types of goods determine how customers make their choices. Also, with the higher rate of interest for customers, there is a possibility that they can save a lot because they are likely to get high in return.

Demand Curve

From the above diagram, it is factual that not every demand curve will take the down slope merely because of the cost of the item increases. Customers often buy products regardless of the increase of the price (Zhao, Wang, Watson & Guan, 2013). Typically, higher costs of products imply lover in demand. The curve shows that consumers are not affected by the price increase.

Higher Wages

The customer choices in relation to income are influenced by the four types of products. Substitutes, inferior, normal and complementary types of goods greatly affects the choices the consumer make.

The diagram above demonstrates income consumption curve to describe the normal product (Foxall, 2016). Overall, the diagram shows the rise and fall in utility as the quantity varies. Further, the diagram above, complementary products, holds that when the income augments other relative good also increases in price simultaneously. For instance, when buying goods, some other goods will be bought by the consumer. Substitute’s products are substituting the goods for the consumer. These products do not have the impact. Consumers buy substitute products to fulfill their needs.

Higher Interest Rates

The increase in interest rates affects the consumers’ spending. Therefore, a rise in interest will make consumers save more cash and they normally stop spending. Similarly, when the rate of interest falls, there will be increase in the spending (Foxall, 2016). As a result, certain consumers may wait longer for the rates of interests are lower.

The Role of Asymmetric Information

It is important for any company to conduct better market research. This will able they get consumers insight and aim to provide for their needs. The asymmetric information provides evidence that a company experiences some challenges in the market. For instance, purchasing coffee, as a customer do not need more information compared to the individual who made the offer. In this sense, the person who makes the coffee should do allot of market research to understand what the consumers want (Pinjari, et al, 2016). Therefore, customers are not accepted to buy information of the product even if they are paying less or more. Commoners should be given the information about the products they are buying.

Condorcet Paradox and Arrow’s Impossibility Theorem In The Political Economy

The Condorcet paradox is proving to be a challenge in the business world and to the entire society. Customers are not sure on what they want to buy just because they need other things as well. The implication is that the problem is the economy (Oliveira‐Castro, Cavalcanti, & Foxall, 2016). Some people may have a need to purchases something yet they do not have enough money to help them buy those items. For example, if the client votes for A more than option B and C, while other customers opt for B or C. The examples include;

Customer 1, A > B > C

Customer 2, B > C > A

Customer 3, C > A > B

The questions that are then not answered is who will get the majority votes? Therefore, Arrow impossibility theory may assist solve such problems. Overall, it is a social option paradox showing what type of product wins the majority votes accurately.

People Not Being Rational In Behavior Economics

When one decides to order a coffee, instance of an economics of behavior, a plain coffee remains the rational option in a case whereby customers are not able to make the decision on the type of coffee they want to buy. However, when the customers make decision to add cream and sugar. The company, Starbucks, have condiments to each which is needed for coffee inside the shop. Moreover, making the order for defaults goods are always done by the consumers who are not sure about the purchase.


In conclusion, getting consumers insight about how customers will make their decision and choices on the products they purchase. Therefore, the company should adjust according to base on the market situation. Additionally, goods are branded depending on how the consumers remain attracted in respect to the process. Overall, higher wages, demand curves, as well as a rate of interests, comprehensively defines and described the effect of the behavior of consumers. Furthermore, if the customers are unable to make decisions on whatever they need, the Condorcet paradox together with the Arrow impossibility assumption may help in solving such challenges. It is therefore important for companies to study consumer purchasing behavior o make better sales volume. Those companies that have failed to examine customer’s insight have experienced market challenges. However, firms such as Starbucks have taken an initiative to serve their consumers while providing the best products and serves.


Foxall, G. R. (2016). Operant behavioral economics. Managerial and Decision Economics37(4-5), 215-223.

McFadden, D. (2014). The new science of pleasure: consumer choice behavior and the measurement of well-being. Handbook of Choice Modeling, 7-48.

Oliveira‐Castro, J. M., Cavalcanti, P. R., & Foxall, G. R. (2016). What consumers maximize: Brand choice as a function of utilitarian and informational reinforcement. Managerial and Decision Economics37(4-5), 360-371.

Pinjari, A. R., Augustin, B., Sivaraman, V., Imani, A. F., Eluru, N., & Pendyala, R. M. (2016). Stochastic frontier estimation of budgets for Kuhn–Tucker demand systems: Application to activity time-use analysis. Transportation Research Part A: Policy and Practice88, 117-133.

Zhao, C., Wang, J., Watson, J. P., & Guan, Y. (2013). Multi-stage robust unit commitment considering wind and demand response uncertainties. IEEE Transactions on Power Systems28(3), 2708-2717.



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