FHCE 3100 Lecture Notes - Lecture 4: Invisible Hand, Esther Peterson, Consumer Protection

• School: University of Georgia
• Department: Financial Planning, Housing and Consumer Economics
• Course: FHCE 3100
• Professor: moorman

Document Summary

Adam smith wrote wealth of nations in 1776. He said that consumers will make choices that give them the greatest amount of satisfaction. He was a proponent of the invisible hand (minimizing government intervention in the marketplace) It is the dominant theoretical paradigm in microeconomics. It assumes that individuals choose the best action according to stable preference functions and constraints facing them. Although rationality cannot be directly empirically tested, empirical tests can be conducted on some of the results derived from the models. When a person pays an extremely high price for a product for its prestige value leading to a much higher demand than a simple price/demand relationship would justify. Prestige: a high standing achieved through success or influence or wealth etc. Law of demand: if nothing else changes, consumers will buy a greater quantity of a product at a lower price than at a higher price.