consumpers optimum

consumpers optimum - 6c: The consumer's optimum In this...

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Y X * Y * 6c: The consumer’s optimum In this section, we will introduce the idea of consumer optimization. Every consumer has utility. Because the utility measure the happiness of a person, every consumer will try to maximize their happiness. However, each individual only has limited amount of I dollars to allocate. Therefore, we need to formulate the budget constraint as the following with n goods with price . The amount of money to buy a good with price is . Since the total amount of spending on goods must less than or equal to income I , then the budget constraint is: . (6.c.1) To simplify our analysis, we only consider with two variables now. Then (6.c.1) become Fig 6.c.1: The Utility maximization by using graphical method From figure 6.c.1, we can imagine the indifferent curve moving outward. Then the utility increases by that process. As the indifferent curve moving outward, the total expenditure also increases. This process continues until the total expenditure exactly equal to the total
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consumpers optimum - 6c: The consumer's optimum In this...

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