Chapter 2
Cookies or Ice Cream?
Tracking Consumer Choices
In
Chapter 2 of Economics for Dummies, I cover how economists model human
choice behavior.
This process is
viewed as an optimization problem, as in "How do I make myself as happy as
possible, given the constraints that I face?"
To think about this in a sensible way, economists
first posit utility, which is a generalized sort of happiness. Why
generalized? Because people must have some way of comparing apples
with oranges. Both can make you happy, but any decision about whether
to spend more money on apples or oranges can only be possible if
inside your head you have a common denominator with which to compare the
happiness you'd get from eating an apple with that you'd get from eating an
orange. Economists call that common measure of happiness utility,
and sometime speak of it as being measured in units that they very
uncreatively refer to as utils.
Once you have the concept of utility down, studying
human choice behavior the way that economists do is more or less just a
matter of doing cost-benefit analysis. That is, spend your money (a
cost) on those things where it's going to bring you the biggest benefits.
The links below give great additional reading on how
people go about this process and how they sometimes get it wrong.
