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Unformatted text preview: While it is impossible to know exactly what goes on inside a buyer's head while they are making a decision, we can assume that a normal person will choose whichever combination will make them as happy as possible, given their choices and their budget. On the graph, this means that they will choose whichever combination lands them on the highest indifference curve possible. We can see this optimization if we draw in the consumer's budget constraint on the same graph as the consumer's indifference curves. To draw a budget constraint, a line that shows the maximum amount of goods a buyer can purchase with their available funds, you need to know two things: 1) how much money they have, and 2) the prices of the two goods being considered. Once you have both pieces of information, it is simply a matter of finding out the maximum amount of...
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- Fall '11