The Consumption Of Two Goods

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consumption of two goods In economics a consumer is described as a rational individual who wishes to maximise their utility by making rational choices. These choices appear when a consumer is exposed to two goods, where a given amount of one good substitutes the use of another one. To calculate how a consumer can achieve the optimal allocation of the two goods, an indifference curve is used and the analysis of an indifference curve can be combined with the budget constraint. For the consumer, some combinations are better than others for maximising utility, and the best combination is the optimal combination. Consumers have preferences about the goods they consume. Therefore, when faced with a choice of goods, the consumer must decide…show more content…
Consumers wish to have a higher number of goods than less. If the consumer added another book to his bundle, he would have to sacrifice some water, in order to hold utility constant. One can calculate how many glasses of water the consumer is willing to sacrifice for another book without changing his total utility through the marginal rate of substitution. According to (BEGG et al., Economics, 11th edition, McGraw-Hill Education, 2014 ), the marginal rate of substitution between two goods measures the quantity of a good the consumer must sacrifice to increase the quantity of the other good by one unit without changing total utility. For example, if the consumer has 10 books and no water and he reads 9 of these books, he won’t enjoy the last one as much. Furthermore, by drinking no water the consumer will be very dehydrated and won’t enjoy reading at all, and so the utility of this particular bundle would be extremely low. On the flip side, if the consumer drank a large amount of water and read few books. As a result, he would be reluctant to sacrifice his books for even more water. By and large, a consumer’s preferences exhibit the diminishing marginal rate of substitution, which means that when a consumer owns lot of one good, they will give up a comparatively large amount of it to get another good of which they have little. We use indifference curves to portray our hypotheses
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