Two Key Ideas in the Model of Consumer Choice (see also Suggestions for Completing Problem Set 2)

 

 

Idea #1: Deciding Expenditures on Each Good

 

 

 

 

 

 

MUA/PA = MUB/PB

 

--Utility per last dollar spent on each good must be equal

 

 

 

 

 

 

 

 

 

 

 

Idea #2: Relative Consumer Well Being at Two Times with Same Preferences