Consumer theory is a branch of microeconomics that studies how consumers make purchasing

decisions. It focuses on understanding the preferences and behavior of consumers in terms of

the goods and services they wish to purchase, the quantity they want, and the price they are
willing to pay.

Consumer theory encompasses various concepts and models, including utility theory, budget
constraints, indifference curves, and marginal utility. The theory assumes that consumers act
rationally and seek to maximize their utility, which is the satisfaction or usefulness they derive
from consuming a product or service.

Through utility theory, consumer theory examines how consumers allocate their income to
purchase goods and services that provide them with the most utility. Budget constraints, on the
other hand, show how consumers' income and prices affect their purchasing power.

Indifference curves illustrate the different combinations of two goods that provide the same level
of utility to the consumer. Marginal utility, meanwhile, measures the additional satisfaction
gained by consuming an additional unit of a good or service.

Consumer theory helps businesses and policymakers understand consumer behavior and make
informed decisions regarding product development, pricing, and regulations.