by From Asad Zaman Lecture 5 of Advanced Microeconomics at PIDE. The base for this lecture Hill & Myatt Anti-Textbook Chapter 4 on Consumer Theory. Hill and Myatt cover three criticisms of conventional microeconomic consumer theory. Economic theory considers preference formation as exogenous. If the production process also creates preferences via advertising, this is not legitimate. Consumers are supposed to make informed choices leading to increase welfare. However, deceptive advertising often leads consumers to make choices harmful to themselves. The full information condition assumed by Economics is not valid. Economic theory is based on methodological individualism, and treats all individual separately. However, many of our preferences are defined within a social context, which cannot
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from Asad Zaman
Lecture 5 of Advanced Microeconomics at PIDE. The base for this lecture Hill & Myatt Anti-Textbook Chapter 4 on Consumer Theory.
Hill and Myatt cover three criticisms of conventional microeconomic consumer theory.
- Economic theory considers preference formation as exogenous. If the production process also creates preferences via advertising, this is not legitimate.
- Consumers are supposed to make informed choices leading to increase welfare. However, deceptive advertising often leads consumers to make choices harmful to themselves. The full information condition assumed by Economics is not valid.
- Economic theory is based on methodological individualism, and treats all individual separately. However, many of our preferences are defined within a social context, which cannot be neglected.
Before discussing modern consumer theory, it is useful to provide some context and
1 Historical Background:
In a deeply insightful remark, Karl Marx said that Capitalism works not just by enslaving laborers to produce wealth for capitalists, but by making them believe in the necessity and justness of their own enslavement. The physical and observable chains tying the exploited are supplemented by the invisible chains of theories which are designed to sustain and justify existing relationships of power. Modern economic consumer theory is an excellent illustration of these remarks. read more