Consumption is governed not only by preferences but also by the consumer’s [...]
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budget constraint
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Open it Once we model the consumer’s preferences, we then recognize that consumption is governed not only by preferences but also by the consumer’s budget constraint (the ability to purchase various combinations of goods and services, given his or her income).
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2. CONSUMER THEORY: FROM PREFERENCES TO DEMAND FUNCTIONS t economists are not attempting to predict the behavior of any single consumer in any given circumstance. Instead, they are attempting to build a consistent model of aggregate market behavior in the form of a market demand curve.
<span>Once we model the consumer’s preferences, we then recognize that consumption is governed not only by preferences but also by the consumer’s budget constraint (the ability to purchase various combinations of goods and services, given his or her income). Putting preference theory together with the budget constraint gives us the demand curve we are seeking. In the following sections, we explore these topics in turn.
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