Wednesday

 



Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 23 of 23
…
The theory of consumer choice describes how people make decisions and has broad applicability.
Examples covered this chapter included pizza and Pepsi and work and leisure.
But it can apply to any economic choice between alternatives including whether to consume now or save for later.
But, do people really think in terms of the theory of consumer choice?
As a consumer you quickly decide what to buy every time you shop.
You do not decide by thinking through and writing down budget constraints and indifference curves.
…
The theory of consumer choice is an economic model.
Economic models are not intended to be completely realistic for practical use and do not try to give a literal explanation of how people make decisions.
The best way to view the theory of consumer choice is as of a breakdown into components and an illustration of the decision process consumers go through.
Consumers are aware their choices are constrained by their financial resources.
Given those constraints, they do their best to achieve the highest level of satisfaction.
Fundamentally, the theory of consumer choice is cost-benefit consideration.
…
(End of chapter 21 of 36)
… …
Congratulations! 58%, 21 of 36 chapters, of way to becoming a competent economist.



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