Syndicate
Consumer That Maximizes Utility
What we are going to be talking about here is what can be found behind the demand curve and show how people choose what they buy. This process of decision-making is very important because it is the human desire that moves the economy. Companies do not produce goods and services in a random way; they produce things because they want people to buy the things the people want and spend their money on it.
The study of this process is a bit difficult because people are able to spend their money on a lot of different things. If an economist could investigate how you would spend $100 in a place that only sells one type of product, the job would be a lot easier. What is impressive is that economists have found a way to explain how you would spend $100 in a place that has hundred and thousands of items for sale.
What is even more impressive that that is the fact that experts are not only able to tell what items you would chose to buy, but also how many you would choose of each one. The point is that economists are not only able to tell what you demand, but also the amounts of that demand, which is the origin of the demand curves.
We will start out by mentioning utility because it is the parameter with which economists measure how content people are. These experts suppose that people act certain ways that allow them to maximize their happiness, but our actions are restricted, especially due to limited budgets. We will get into how people manage these restrictions in order to obtain the maximum amount of happiness, given the limits.
Restricted Optimization: The reason that people need to choose is that the means that are available to satisfy the needs of all humans are limited. As we all know, there is never enough time or money to do everything we want. Therefore, we need to wisely choose what we can do to maximize our happiness with the limited resources available.
Experts and economists call this specific type of problem, restricted maximization problems, because the people are trying to enhance their happiness under restriction of limited resources.