Economic agent and utility maximization

Agent or Actor – An agent or actor is the decision maker in an economic model (the model created by the economists). The young aspiring woman mentioned in last article is an agent. Whenever agent takes decision and acts, we see change in variables of the economic model.

Definition of Agent : An individual, company or organization influencing economy through their decision of buying, selling or Producing; with the single agenda of success of their decision.
So decision with the agenda of getting success remains part of study.

Type of agents: Two common types of agents in every economic model are PRODUCER and CONSUMER. While Producer agenda is to make maximum profit (subject to input cost and consumer demand), and Consumer main agenda is to get the best from what is available in market by well utilizing the resources available at his/her disposal. From this consumer behavior arise the definition of UTILITY MAXIMIZATION.

UTILITY MAXIMIZATION : A consumer always have limited wealth at his/her disposal. This limited wealth or Budget Constraint makes consumer choice limited. From this limited choice, consumer tries to get maximum value out of certain expenditure which he or she considers least expenditure. Agenda or objective of consumer is least expenditure, derive maximum value. So Consumer select set of goods and services that makes them as prosperous as possible, subject to the budget constraints. This is what is known as utility maximization.

Example of Utility maximization : You need the I-Phone recently launched in market, you make a list of resources available with you. Your savings, any scheme going on, EMI option, asking money from friends etc.. Subject to these option or budget constraints you will make a choice, whether or not to have that shining brand new I-Phone in your hands.

Few consumer and producer preferences or decision discussed:

Individual: Maya demand for products increase with more purchasing power at her disposal. She will purchase more woolen clothes, if she resides in hilly area. Maya’s output/income/savings/profit/consumption varies at different points. Say it differs when she is unemployed, to a point when she is working as a director in a company. Her demand, savings etc increase when she moves one ladder up in an organization. She purchase more green-tea if she is watching her weight. So Maya is acting as consumer as well as producer in an economy, & both these behavior changes as corroborated above.

Company/firm: Company named ABC output/profit/savings/investment etc. increase according to level of demand, taxes, deduction, depreciation and input cost based on raw material, human resource, innovation etc

Inference – Maya as a consumer maximize her choices subject to budget constraints (Money in her hands). As a producer, her output varied at different employee level in organization with no output when she was unemployed.
Company ABC takes different decision at different time, so as to maximize co. PROFIT.
-What to produce (Say cotton Pants or shirts, for boys or for girls)
-How to produce.
-Who get the produced (Market for cotton clothes. i.e luxurious or for everyone).

Central Bank, Government, Household are other attributes of an agent in macroeconomic model.

Got Something To Say:

Your email address will not be published. Required fields are marked *

*
*