Theory of Consumer Behavior
The Consumer’s Optimization Problem
Individual consumption decisions are made with the goal of maximizing total satisfaction from consuming various goods and services
Subject to the constraint that spending on goods exactly equals the individual’s money income
Consumer Theory
Assumes buyers are completely informed about:
- Range of products available
- Prices of all products
- Capacity of products to satisfy
- Their income
Requires that consumers can rank all consumption bundles based on the level of satisfaction they would receive from consuming the various bundles