Consumer Theory

• Preferences and Utility • Utility Maximization (the primal problem) • Expenditure Minimization (the dual) First we explore how consumers' preferences give rise to a utility fct which describes people's objectives. We then consider two alternative ways of attaining the consumer's optimum. Either he/she maximizes utility subject to the budget constraint or she/he minimizes expenditure subject to attaining a given utility level. The second approach (the dual to the first) is less intuitive but much more convenient when deriving further results. It is also very similar to companies' cost minimization.