What is the Consumer Theory?

Surely all people at some point have found themselves in the position of consumer when satisfying certain needs through the acquisition of some good or service, this practice being, in reality, action from day to day day.

The action of acquiring goods or services, regardless of which product is referred to, always will be influenced and determined by certain factors, such as the income or the preference of each consumer.

For this, microeconomics through consumer theory It has been in charge of identifying and analyzing the behaviors and references that economic agents exercise within the role of consumers of goods and services.

Concepts of consumer theory

To fully understand consumer theory, a series of terms must be taken into account that influence in the analyzes carried out on the behaviors of rational agents who acquire goods and services. Among the most relevant concepts are:

Preference

When speaking preferably in consumer theory terms Mention is made of the choice made by the consumer among the alternatives in the basket of goods and services.

For which, in said basket of goods and services, the alternatives included are stipulated through numerical series that indicate the amount of merchandise that is contained.

In order for a rational agent or consumer to be able to define the point of greatest satisfaction for him, then, he must first of all organize the goods available in said basket according to his preferences.

Indifference curve

The indifference curve is a graph in which the inputs of the basket of goods and services are contained, of which they register certain degrees of satisfaction or utility on the part of the consumer, together with the income restriction line that identifies the optimal point of consumption.

One of the bases of the theory of the consumer is the regular preferences of the consumers to reach an equilibrium. For which the indifference curve must meet certain requirements, such as:

• The curve incorporated in the graph that is farthest from the origin will be more preferred.
• The indifference curve must be decreasing, that is, its slope must be negative.
• Within the graph there can be more than one curve, which should not be crossed, due to the transitive nature of consumer preferences.
• The curves must be convex in the direction of the origin, because the less a product is available, the more valued it is.

Utility function

It sets a value to each basket of goods, in relation to the preferences of the rational agent or consumer. Therefore, if basket X is preferred over basket Y, then a higher value would be assigned to basket X.

Allowing to record in this way all that information about consumer preferences, and thus being able to represent them through the indifference curve.

Budget constraint

Despite the consumer preferences that are taken into account, it also has at all times a Budget constraint, which defines the goods and services that can be purchased, according to total income.

Therefore, unlimited amounts of products cannot be purchased, since there is no unlimited amount of income. to invest in them without resorting to credits or external resources, which would move the transaction away from the optimal point of satisfaction maximum.

Consumer balance

It is a fact that consumers have at their disposal a great variety of alternatives in the basket of goods and services that they can select.

Therefore, in the analysis of economic behavior, the concept of consumer equilibrium is used to calculate and record the optimal point at which it is possible to identify the maximum utility of a good or service for a consumer in relation to the budget restriction that it has, in addition to the preferences and costs that are managed in the market.

Consumer theory

Consumer theory states that consumers have the ability to decide how to establish their income or income from according to your preferences for the purchase of goods or services in order to achieve the highest degree of satisfaction possible.

To understand what is consumer theoryIn the first place, it is necessary to start from the assumption that there is a rational agent, that is, a consumer who in every sense manages the available information and thus uses it to his advantage.

The rational agents that are mentioned, face the constant problem of seeing themselves in the need to maximize their rate of satisfaction or utility at all times, for which they build utility functions in order to face said problem of formal way.

For this reason, rational agents are considered as connoisseurs of certain areas that allow them through mathematical operations construct the utility function, for which they make use of the well-known curve of indifference. Consequently, the agent orders the endowments to which he has access and selects the quantity he wishes to consume.

That is, by having two endowments, it could identify the highest and lowest consumption, taking into account the utility function, with which he maximizes his available goods in consideration of his constraint budgetary.

Together, considering these two factors, the optimal point would be found at the moment that both the budget constraint and the indifference curve intercede in the degree of utility. Thus guaranteeing the maximum rational satisfaction possible within the net disposable income by the consumer, that is, the equilibrium.

In case the consumer wanted to increase the degree of satisfaction, then, he would need to increase the income altogether by resorting to external benefits, no longer This can be considered as optimal, and if otherwise the degree of utility decreases to reduce the expense of income, then it would be considered as sub-optimal.