New Horizons in Environmental Economics series
Page 55 3— Demand Theory and TCM We noted in the last chapter that early developers of TCM had a clear view that their goal to measure economic values of outdoor recreation and outdoor recreation policies should be based on the underlying theory of consumer choice and on the preferences of visitors and economic constraints that govern their choices. In this chapter we explain the basics of the theory of consumer choice and the concept of demand, discuss the determinants of demand and, importantly, constraints that limit demand. We also introduce elasticity of demand, discuss some pricing practises, and examine the bases of demand estimation using TC methodology. We include in the estimation section some discussion of important demographic variables. Demand Concepts In this section, we examine consumer choice theory and the determinants of demand, and show how demand functions may be manipulated. Consumer Choice and Utility In building an understanding of consumer choice, we must first make a number of assumptions about people's behavior. These assumptions must be made so that we can build a model; if they are not plausible and testable for the general populace, then the model will have little explanatory power. One assumption is that consumers have a set of tastes and preferences, which governs their choices among the multitude of goods (and services) on offer. It does not matter how those preferences are formed — for example, through cultural heritage, upbringing in the home, formal education, peer pressure or serendipitous encounters. Similarly, it does not...
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