Utility maximization problem: Difference between revisions

Revision as of 11:05, 30 August 2006

Revision as of 10:32, 13 March 2007

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If a consumer always picks an optimal package as defined above, then ''x''(''p'', ''w'') is called the [[Marshallian demand correspondence]]. If there is always a unique maximizer, then it is called the [[Marshallian demand function]]. The relationship between the [[utility function]] and [[Marshallian demand]] in the Utility Maximization Problem mirrors the relationship between the [[expenditure function]] and [[Hicksian demand]] in the [[Expenditure Minimization Problem]].

In practice, a consumer may not always pick an optimal package. For example, it may require too much thought. [[Bounded rationality]] is a theory that explains this behaviour with [[satisficing]] - picking packages that are suboptimal but good enough.

To evaluate the utility of each bundle of goods requires time, knowledge, and attention. The number of bundle is extremely large (think to a supermaket) or even infinite. Thus, comparision in reality occurs only between a finite number of potential purchases (think to the process leading to choosing shoes). Neoclassical theory ignores this facts and uses high mathematics which is never used by real consumers.

Consumers, on the contrary, have developed skills, such as the capability of judging things, by parent's teaching, peer socialization, trial and error. They apply these skills, usually following simple rules of behaviours (e.g. buying a good that satisfy a need and whose price is below a certain maximum threshold).

==See also==

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==References==

* Mas-Colell, Andreu; Whinston, Michael; & Green, Jerry (1995). ''Microeconomic Theory''. Oxford: Oxford University Press. ISBN 0-19-507340-1

[[Category:Consumer theory]]