(Economics) compare how consumer choice drives market.

Key Points

Consumers analyze the optimal way in which to leverage their purchasing power to maximize their utility and minimize opportunity costs through employing trade -offs.

The way economists demonstrate this arithmetically and visually is through generating budget curves and indifference curves.

Budget curves indicate the relationship between two goods relative to opportunity costs, which defines the value of each good relative to one another.

Indifference curves underline the way in which a given consumer interprets the value of each good relative to one another, demonstrating how much of ‘good

x

‘ is equivalent in utility to a certain quantity of ‘good

y

‘ (and vice versa).

Through utilizing these economic tools, economists can predict consumer behavior and consumers can maximize their overall utility based upon their budget constraints.

Key Terms

Trade-offs: Any situation in which the quality or quantity of one thing must be decreased for another to be increased.

utility: The ability of a commodity to satisfy needs or wants; the satisfaction experienced by the consumer of that commodity.