In this Learning Path, the first one about microeconomics, we will look at consumer behaviour from a theoretical perspective, trying to solve the basic problem we all face every day: how to get as much of what we want or need without blowing our budget.
Since the main tools needed in order to understand consumer theory are quite a few, we present them in two LPs. The contents of this first half are:
Preferences, which govern what we choose, and then move onto
Goods, which we blow our budget on, before putting it all together in
Utility and budget:
Utility functions, which show how much satisfaction we derive from what we consume.
Then, the relationship between the utility different goods provide us through the marginal rate of substitution, before moving on to
Indifference curves, the graphical representation of the utility we assign to the different goods.
We must also introduce the second side of our problem: our budget constraint.
Consumption duality I:
Finally, we’ll put it all together and look for a solution to our utility maximisation problem.