How the neoclassical Consumer Theory and the Theory of the Firm predict that competitive behaviour in all markets results into Pareto Efficient allocations Neoclassical consumer theory uses the conventional model of economics of consumer behavior. The model which is often used is based on the consumer as a knowledgeable decision maker. The model optimises the consumer’s contentment with purchases through reasoned analysis of utility and value (Foss, 1993, p. 143). There is increase in market competition as a result of change in consumer behaviour. The increased flow of information raises the level of awareness among consumers; entrepreneurs must continuously develop innovative ideas in order to satisfy the contemporary consumer. Neoclassical Theory and Consumer Preferences The neoclassical consumer theory holds that there is a negative correlation between an item’s attached value and its price. Hence, when the price of the product or good decreases in a given economy; consumers benefit from buying more of that good. On the other hand, when the price of the good increases; consumers make less purchases. Intertic (2012) contends that from the economics point of view; consumers make their purchases by choice. Intertic assertion is similar to the one Becker support. He cites that understanding of consumer preferences fixes resource allocation by the firm creating a Pareto effect (Becker1962, p. 7). Consumer’s and Elasticity of Demand The strength with which consumers shift their demand for a particular product with regard to price change explains what Intertic (2012) refers to as the “elasticity of demand”. Elasticity of demand occurs when the consumer- demand declines drastically as a result of increase in price. In such a case, the demand for the goods in question is said to be elastic, and can lead to the Pareto effect (Becker, 1962, p. 7). However, insignificant shifts in consumer demand result in inelastic demand. In his view, Intertic (2012), elasticity is a key cause that alters consumer demand and eventually redefines their preferences. Consumer demands are driven by other significant underpinnings which eventually affect their decision making capacity. Hence, a keen observation of the idea shows that consumers are “rational decision making agents” (Becker, 1962, p. 9). They are motivated in seeking the best or the highest level of satisfaction, which Becker (1962, p. 10) refers to as utility. Utility Needs Consumer needs revolve around their utility as well as specific assumptions that the purchased goods offer. This, according to Heiner (1983, p. 562) shows that the advantage to be gained from a specific good is not only driven by its price, but also by the subjective sensitivity of the consumer towards it. According to Foss (1993, p. 137), consumers rank their preferences on sets of available alternatives. This aspect allows them to decide either to buy or not. Their preferences cause them to select goods or services that provide them with the best utility functions. Heiner (1983, p. 566) describes the level consumer benefit from the utility function as utility maximization; that is, the demands of the consumers are motivated by their expected gain on the utilities. Demsetz (1968, p. 37) points out that consumers have many needs and wants. However, they have limited resources to satisfy all needs and wants. This, theref