If people base their decisions on their own tastes and personal preferences, however, then how can economists

hope to analyze the choices consumers make?

An economic explanation for why people make different choices begins with accepting the proverbial wisdom

that tastes are a matter of personal preference. However, economists also believe that the choices people make

are influenced by their incomes, by the prices of goods and services they consume, and by factors like where

they live. This chapter introduces the economic theory of how consumers make choices about what goods and

services to buy with their limited income.

The analysis in this chapter will build on the budget constraint that we introduced in the Choice in a World of

Scarcity chapter. This chapter will also illustrate how economic theory provides a tool to systematically look at

the full range of possible consumption choices to predict how consumption responds to changes in prices or
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