This video explains how utility maximisation works, both from the analytical and graphical points of view. We start analysing utility maximisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of consumption. A.6 Utility maximisation | Consumption - Microeconomics Learn, and enjoy!

This really helped. Thank you

Thanks

How do you find X1 and X2 coordinates by only having given the budget and prices of each good?

@somag6810

4 жыл бұрын

There are two theories of Utility. Cardinal Theory of Utility and Ordinal Theory of Utility. As per Cardinal Utility theory we can assign values or say quantify the utility called 'Utils'. That's how you can get x1 and x2 in terms of 'utils'. We can take any example of utility maximization like spending on fuel and paying house rent. As house rents near my office are very high I would want to go farther so that I can pay lesser rents but then I have to spend more money on fuel. Since I have budget constraints I have to optimize the consumption which is nothing but maximizing utilization for the budget constraints I have.

won't the slope of the budget line be -(p1/p2)?

@chrisperry6874

Жыл бұрын

you take the absolute value of the slope