Rationality of Choices Made by Individual Consumer

This chapter presents basics concepts of the consumer theory, such as the relation of consumer preference, consumption bundleConsumption bundle, utility function, Marshallian and Hicksian demand functionsFunctionof demandof compensated demand (Hicksian demand function). The main part of the chapter is a description of problems of consumption utility maximizationProblem ofutility maximization and consumer’s expenditure minimizationProblem ofconsumer’s expenditure minimization, in the static as well as in the dynamic approach. The reader learns how to describe and analyse a consumer’s choice ofOptimalconsumption bundle optimal consumption bundleConsumption bundle when consumer goods are substituteConsumer goodssubstitute goods or complementaryConsumer goodscomplementary to each other. The analysis of demand’s reaction to changes in a good’s price or in a consumer’s income shows how to classify consumer goods and how to incorporate these changes jointly in the Slutsky equationEquationSlutsky equation.