The Theory of Consumer Behavior posits that buyers choose the bundle of goods that maximize satisfaction, subject to a budget constraint. There are many applications from this basic idea. The material is organized as shown in Figure I.1.

By changing the price of a good, holding everything else constant, we can derive a demand curve. This is the most important concept in the Theory of Consumer Behavior.

Although deriving demand is undoubtedly our prime objective, Figure I.1 also shows the flexibility of the Theory of Consumer Behavior. It can be applied to such wide-ranging topics as charitable giving, driving a car, and asset allocation.

This part concludes with search theory and behavioral economics – special topics built from relaxing assumptions in the basic theory.

After finishing the Theory of Consumer Behavior (from which we get demand), we tackle the Theory of the Firm (and derive the supply curve). The third and final part is the Market System, which studies supply and demand as a resource allocation mechanism.

References

The epigraph is from the second page of the introductory chapter to Thomas S. Kuhn's classic, The Structure of Scientific Revolutions (originally published in 1962). Kuhn argued that progress in science is not generated by bit-by-bit puzzle solving (what he called normal science), but that periods of calm are followed by crises that lead to paradigm shifts.