Chapter 5
Introducing Homo Economicus, the Utility-Maximizing Consumer
IN THIS CHAPTER
Studying how people maximize their utility (happiness)
Taking account of diminishing marginal utility
Watching how people weigh alternatives
Choosing exactly the right amounts within a limited budget
This chapter gets behind the demand curve (which I introduce in Chapter 4) by showing you how people come to choose the things they do. This decision-making process is critical because human wants drive the economy. Firms don’t randomly produce goods and services; they produce the things that people want to buy and are spending money on.
The thing that makes studying this process hard is that people have so many different things they can spend their money on. If economists were asked to research how you’d spend $100 in a store that sold only blueberry muffins, their job wouldn’t be so hard. What’s impressive is that economists have come up with a way to explain how you’d spend $100 in a store that has hundreds or even thousands of items for sale.
Even more impressive is that economists can explain ...
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