Maximum Net Benefit 2

This example illustrates several key themes of neoclassical demand theory.

It is a theory of rational consumer decisions, in a special sense.

Remember, our consumer kept increasing the consumption of burgers as long as one more burger would increase his net benefits. In other words, he maximized net benefits in consumption of burgers. Economists speak of "utility-maximizing" decisions, using the older terminology, or just of "maximizing" decisions, and understand decisions of that kind as "rational" decisions.

According to the theory, consumers really do make decisions that are rational, in the sense of "maximizing."

Some economists, and many non-economists, doubt that real human beings are capable of "maximizing net benefits" in real-world decisions that can be much more complex than the "how many burgers" example. But neoclassical economist argue that, even though people do not consciously "maximize" anything, they act on the average "as if" they were maximizing. That's "positive economics" -- a question of fact -- and neoclassical economists offer a wide range of evidence in favor of it.

The example also gives us some hints about how to maximize net benefits.

Recall, the consumer balanced the marginal benefit of one more burger against the price, and kept increasing his consumption until the marginal cost was very nearly equal to the price. The general rule is, to maximize net benefits, a consumer should adjust consumption so that MB=p, as nearly as possible.