ABSTRACT

Economists have had a longstanding concern with understanding and modeling the behavior of consumers, both in the narrow sense of their behavior as buyers of goods and services in product markets and as suppliers of services in labor markets, and in the broader sense of their collective purchases of public goods—schools and roads, air and water quality, national security, etc. Analysis of these issues has been cast as a constrained optimization problem: consumers are perceived as choosing a particular bundle of goods and services, or a combination of work and leisure hours, or a set of taxes and public goods, that represents the optimum mix subject to the constraints of income and prices.