Consumer Choice
4 years ago
Microeconomics
Consumers will always choose goods to maximize the satisfaction they can achieve, given the limited budget available to them. The maximizing market basket must satisfy two conditions:
- It must be located on the budget line
- It must give the consumer the most preferred combination of goods and services
**The basket that maximizes satisfaction must lie on the highest indifference curve that touches the budget line.
Satisfaction is max. at the point: MRS = Px/PY
Marginal benefit – Benefit from the consumption of one additional unit of a good.
Marginal cost – Cost of one additional unit of a good.
Corner Solutions – Situation in which the marginal rate of substitution of one good for another in a chosen market basket is not equal to the slope of the budget line.
Bijay Satyal
Nov 24, 2021