consumer theory

Quick Reference

The theory explaining the choices made by individuals and households in terms of the concept of utility. Consumers are assumed to be able to order their preferences (see consumer preference) in such a way that they can choose a basket of goods that maximize their utility, subject to the constraint that their income is limited. The application of price theory and demand theory to this problem forms the basis of microeconomics (together with the theory of the firm) and also of macroeconomics.

Subjects: Business and Management.

Reference entries