Episode 36: Consumer Choice Theory

The Science of Everything Podcast

James Fodor

Social Sciences, Natural Sciences, Science

4.8 • 819 Ratings

🗓️ 12 August 2012

⏱️ 48 minutes

🔗️ Recording | iTunes | RSS

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Summary

A discussion of the theory of consumer choice in economics, including an outline of consumer preferences and the axiomatic assumptions economists make about them, a discussion of the realism of these assumptions, and an explanation of how preferences are used to derive consumer utility functions and demand curves. These basic concepts are then applied to understand consumer behaviour in an analysis of substitution and income effects, complementary and substitute goods, and elasticity of demand. Recommended prerequisites include Episode 12: The Price System and Episode 16: Profits and Competition.

Transcript

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0:00.0	Oh, wow, oh, oh, wow, oh, wow, oh, man.
0:15.0	Like, you know, like me.
0:18.0	Oh, oh, Theory, and I'm your 36, Consumer Choice Theory.
0:39.4	And I'm your host, James Fodor.
0:41.2	In this episode, we're going to look at the area of microeconomics called Consumer Choice, or just Consumer Theory.
0:46.9	This field establishes a mathematical model of consumer preferences for goods and services and what people want to buy and how much they want to buy and
0:54.2	things like that, and then puts these things together to try and work out individual and
1:00.0	collective consumer demand for various goods and services and how these are changed by changes
1:04.7	in income and changes in prices and things like that. So although it might not sound like the most
1:10.4	interesting topic in the world,
1:11.4	it is very important to economic analysis
1:14.3	and sort of underpins a lot of the other more applied fields of economics
1:18.7	that I'd like to talk about in future episodes.
1:21.1	So that's why I wanted to do an episode on this so we could get that basic foundations.
1:25.4	The sort of sister field to consumer theory is producer theory,
1:29.7	which looks at how businesses produce goods and services, how their cost structures will affect
1:35.1	how their cost structures will affect the profits that they can make and the amount of goods
1:38.9	they sell, and also how the different levels of competition and industry structure in
1:43.1	different markets will affect
1:44.6	the outcomes there. We'll do that in a future episode. For this one, we're going to look at consumer
1:48.8	theory and preferences and demand and so on. Recommended prerequisite episodes for this episode are
1:54.6	episode 12 on the price system and episode 16 profits and competition. First of all, we need to explain what we mean by the idea of
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