Willingness to pay in the Theory of a Consumer
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CitationDannenberg, Alia. Estola, Matti. (2018). Willingness to pay in the Theory of a Consumer. Hyperion international journal of econophysics and new economy, 11 (1) , 49-70.
Current neoclassical theory of a consumer has some shortcomings that hinder the mathematical modelling of real consumer behaviour. Being based on static optimisation, the neoclassical theory is unable to cover dynamic effects, and its results are valid only in the optimum point. It is also confusing with respect to the concepts of utility, money, willingness to pay, and demand. Here we introduce a new theory for consumer behaviour expressed with measurable quantities that enables both empirical testing and forecasting. A consumer's adjustment is modelled outside possible equilibrium points as well to explain a consumer's movement from one equilibrium to another. Our theory allows time-dependent variables that are necessary for developing a dynamic economic theory, and the neoclassical theory is shown to be a special case of our model.