Basic Consumer Theory

Abstract

This chapter covers basic consumer theory, including budget constraints, indifference curves, utility maximization, and constrained optimization. It will be useful for applying economic theory to the changes in the music industry as they relate to goods that are perfect substitutes and perfect complements. Technology has eroded copyright protections and enforcement, and pirated music is a substitute for legal (purchased) music. In response to these changes, musicians have supplemented their incomes by touring and offering other merchandise known as complementary goods. Thus, basic consumer theory is useful in helping us understand the shifts in consumption patterns in the music industry. An understanding of the theory will be useful in analyzing the music industry trends, especially as the consumption mode shifts to online streaming platforms.