Theory of the consumer (micro-economics)

The theory of the consumer is economic modeling behavior of a Economic agent as a Consommateur goods and of service S. This expression generally indicates the only neo-classic theory of the consumer and work which results from this.

Conceptual framework and fundamental assumptions

The study of the behavior of the Consommateur is done in two stages. It is first of all necessary to describe the preferences of the individuals, i.e. how they prefer such good rather than such other. Then, the consumer, having limited resources, will seek the maximization of the utility under budgetary constraint. The combination of the preferences and the constraints of budget determines the choices of consumption, and more precisely which combination of goods the economic agents will choose in order to maximize their utility.

The neo-classic theory depicts the Consommateur according to the features a homo oeconomicus characterized, in particular, by its rationality.

Cardinal utility and ordinal

Within the neo-classic school, a central problem of the Théorie of the consumer is the construction of a function of request which can be it parallel of the function of offer resulting from the Théorie of the producer. This difficulty was solved in two times, initially by supposing a cardinal utility , measurable and comparable between the goods, then a ordinal utility , slightly less less constraining.

Cardinal utility

The precursors of the revolution marginalist (Walras, Jevons, Menger) conceived the utility like the feeling of pleasure associated with consumption with a good. They defended the idea of a cardinal measurement of the utility by supposing that the consuming was able to give an evaluation of the utility which any combination of goods brought to him. This faculty was the exact mirror of the capacity supposed of the producing to predict the production for any combination of inputs given, and simplified the analysis considerably. For teaching reasons, it was also used, with some reserves, by Alfred Marshall.

For example, if the consumption of a $q_A$ quantity of a good has gives a satisfaction of 100 and one $q_B$ quantity of a good B gives a satisfaction of 10, $q_A$ is equivalent to 10 times $q_B$ .

Ordinal utility

The example above illustrates the conceptual problem of the cardinal utility: there does not exist objective scale of the measurement of the utility. This is why Wilfredo Pareto, successor of Marshall proposed a formulation in terms of ordinal utility .

Within the framework of the ordinal utility, it is requested from the consumer to be able to reasonably classify the goods or baskets of goods according to the utility brought. It is enough for him thus to know if it prefers $q_A$ with $q_B$ , $q_B$ with $q_A$ or if he is indifferent between the two. In mathematical terms, it is thus enough to be able to describe a complete préordre on the space of the baskets of goods: the relation preferably must thus be complete (one can compare any couple of baskets), reflexive (a basket is preferred with itself) and transitive (if the basket has is preferred with the basket B and the basket B with the basket C , then has is preferred with C ).

The tenors of this ordinal design are: Wilfredo Pareto, Eugen Slutsky then taken again by Paul Samuelson and John Hicks.

Preferences

One defines in the whole (with the mathematical direction) of the baskets of consumption, the relation of preference . I.e. an agent can express a preference between two baskets of good.

It is supposed that this relation is:

supplements (the agent is always able to compare two baskets of goods).
transitive (if the agent prefers has with B and B with C, then it prefers has with C).
of comparison (if the agent compares the goods has and B, then it considers them equivalent).
of predominance (if the agent prefers more has with B).
of substitutability (if the agent preferred has compared to B because of the quantity, for example, then it is always possible to make this last indifferent of has by compensating for the insufficiency of B by a surplus of quantity)

Moreover, one will also suppose that a consumer always prefers to consume more than less. I.e. if a basket is taken then that the quantity of one or more goods is increased, then the new basket will be preferred with the initial basket (principle of not-satiety ).

This assumption is contestable: one can indeed think that the consumer goes " saturer" at the end of one moment and that the consumption of additional goods does not bring any more additional satisfaction to him. One will choose to place itself within a framework of long run (where saturation is less probable: the agent is less likely to saturate if it can distribute its consumption over a whole year for example). Also let us note in the passing that the scarcity is in the middle of the economic analysis and that, consequently, one is interested rather in the situations where the agents are confronted with this scarcity and cannot offer all that they wish.

Curve of indifference

Marginal rate of substitution

Function of utility

Budgetary constraint

Also called right of the budget , is anything else only the income available to the consumer enabling him to buy goods whose prices are lower than its income. The economic agent thus regards the budget as a constraint, which places the products in a competing situation; the consumer does not have a room for maneuver, it is impossible for him to exceed his budget.

Equilibrium of the consumer

The problem of the consumer is to maximize his utility under budgetary constraint. Graphically, a combination maximizing this utility is necessarily a tangential point between a curve of indifference and the budgetary constraint.

Functions of request

Elasticity of the request compared to the Income

Engel curve

The Engel curve is the curve which connects all the optimal baskets, according to the income.

Effects of the price changes

Theory hedonist of the consumer

New approach of the theory of the consumer

This new design of the things is born about the Sixties with work of Professor Kelvin Lancaster and Gary Becker. Contrary to the Neo-classic theory which has as a base the concept of Utilité, whose practical range is limited, Kelvin develops a theory of a practical prospect insofar as it makes it possible to include/understand the choices or preferences of consumers. This new theory is based on the notion of the characteristic of the goods : each good has certain attributes and any consumer draws satisfaction from these attributes. The famous example of J.Lecaillon and C.Pondaven illustrates this situation well: it is not the car itself which provides a satisfaction to its owner, but the services rendered by such car model in the form of comfort, prestige, speed,… services appreciated subjectively by the consumer.

According to the model suggested by Gary Becker, the consumer seems the producer of his own utility. He releases a similarity between the behavior of a consumer and that of a producer.

See too

Internal bonds

Curve of indifference
marginal Rate of substitution
Elasticity of substitution
Convexity of the preferences
cardinal Theory of the utility
Supply and

External bonds

Behavior of the consumer and the producer, concept of surplus and analyzes public policies
the theory of the behavior of the consumer
Fonction of the request

References

Random links: