Unit 4: Consumer Theory and Equilibrium
This unit addresses the other main agent in microeconomics--the individual consumer. Similar to firms, individuals face constraints in the form of a budget. Time, available resources, and options are not static and make individual economic analysis challenging. Individuals also have unique preferences, and there is no one direct path to utility maximization.
Microeconomists make a number of underlying assumptions about consumer behavior and choices to construct mathematically elegant models. As each of the assumptions is relaxed, a more realistic paradigm of individual behavior emerges. When learning an economic model, first accept the assumptions and then consider how they might be modified.
General equilibrium brings together the problems of the firm and the individual. Equilibrium answers the questions at what price and quantity will consumers and firms make exchanges. Of note, an equilibrium may not always exist; alternative allocation mechanisms can be considered.
Completing this unit should take you approximately 12 hours.