ECO 2023 Lecture Notes - Lecture 2: Budget Constraint, Marginal Utility, Utility
Document Summary
Consider an individual whose utility function is u = x0. 5y0. 5. If the individual consumes 8 units of x and. 2 units of y, then she will experience some level of utility. Any bundle of goods that lies outside (versus inside) of the budget constraint: is unobtainable, given the consumer"s income. Any bundle of goods located inside (versus outside) of a consumers budget constraint: implies the consumer is not spending all of her income on goods and services. If a consumer is maximizing utility then income is allocated over goods such that: marginal utility per dollar (i. e. , marginal utility divided by price) is equal over the goods. Suppose a quantity penalty applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 15 units of the good for each and all additional units (i. e. , the. 16th, 17th, etc. ) can be purchased for each.
