An Islamic Approach To Consumption Theory

Abstract

Western originated economic theory suggests that homo economicus individuals have unlimited needs and they are insatiable. In ordinal utility theorem as human consume more they will capture higher total utility. There is no limit in consuming goods or services for rational individuals except their budgets. However, in reality if individuals consume more than optimal level they will suffer. Holy Quran and Islamic rules advises households to use only necessary amount of goods. Individuals should spend for necessary amount of goods. The rest of their budget should be spent in the way of ALLAH. Indifference curve approach can’t explain the situation in which individuals consume excess amount of goods. Zakat and institution alms are not located in western originated economic theory. In this study we use new tools to explain individuals will suffer from excess amount of consumption. Bliss point and indifference circles are used in our approach and by the help of these tools we can explain Zakat and institution alms. So this will contribute to develop Islamic economic theory.