Understanding what motivates choices is at the root of understanding how consumers make them. Economists assume that consumers maximize utility. Utility is a measure of the satisfaction that the consumer enjoys from the consumption of goods and services (you can think of it as “happiness”). And while consumers seek as much utility as possible, they are constrained by a limited budget, which forces them to make choices within that constraint.
In this chapter, we first discuss what are known as utility functions, and then move to budget constraints. We then combine these to get a rule for how consumers maximize utility across all items that they choose to purchase.
After completing this chapter, ...