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The Consumer Theory

In: MICROECONOMICS with SPREADSHEETS

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  • Suren Basov

Abstract

In this chapter, we are going to discuss the process of formation of a consumer’s demand. Demand of a consumer for good i is a function defined on the prices of all available goods that specifies how much of good i will the consumer like to purchase given the realization of prices. We assume that consumers form their demands rationally, i.e., they result from a deliberation that proceeds as follows. With each bundle of goods, the consumer associates a number that measures her satisfaction from the consumption of the bundle. This number is known as the utility of the bundle. The consumer selects the bundle that maximizes her utility. In doing so, she faces a budget constraint. Often, it is reasonable to assume that amount of goods cannot be negative, in which case consumer also faces non-negativity constraints.It is possible to link the notion of utility with a more fundamental notion of preferences. We will discuss this later in this chapter. For now, let us proceed with the formal statement of the consumer's problem.

Suggested Citation

  • Suren Basov, 2017. "The Consumer Theory," World Scientific Book Chapters, in: MICROECONOMICS with SPREADSHEETS, chapter 2, pages 19-38, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813143968_0002
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    Keywords

    Microeconomics; Game Theory; Producer Theory; Consumer Theory; Economics of Information; Basics of Industrial Organization; Excel; The Solver;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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