Chapter 2 Consumer Theory
The ultimate goal in this chapter is to better understand models of individual decision making. While this will most commonly applied to the context of consumer decision making, many of these principles can be used to think about decision making by individuals in everyday life more broadly.
We will formulate a model of consumer decision making by combining two key facts: (1) consumer decisions are influenced by their preferences and the level of well-being (real or anticipated) they receive from consuming; and (2) consumer decisions are constrained by consumers’ limited monetary resources. Together, these facts will produce a model wherein consumers maximize their well-being given their limited resources.
