# Chapter 3 The Behavior of Consumers by dfhdhdhdhjr

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```									   Utility maximization

The goal of the consumer is to
maximize utility given the budget
constraint. Let’s see what that
means.

1
Utility Maximization

 The individual would like to get to the
highest indifference curve possible, but the
budget constraint restricts the individual’s
options to the budget line.
 On the next slide let’s see what is the best the
individual can do. But, before we do
remember 1) indifference curves summarize
how consumers are willing to trade off good
x for y, and 2) the budget line shows how the
consumer can trade off good x for good y.

2
y                                       Utility Maximization

Because of the budget
c        a       u3              line u3 can not be
reached
u2
b        u1
u1 can be reached at
points c and b, but even
x     more utility would be
obtained if the individual
went to point a on u2.

The utility associated with u2 is the maximum this
person
can achieve given their income and the prices they face.
3
y                                     Utility Maximization

b

x
Note why b from the previous screen was not the best
point. To give up a unit of x and maintain the same
utility the person needed to get back a certain amount of
y. But the market actually gives back more y
than the individual requires. This trade is beneficial.
The individual would thus give up the unit of x
and be happier for the trade.

4
y                                       Utility Maximization
c

x
Note why c from two screens ago was not the best
point. To take a unit of x and maintain the same
utility the person is willing to give up a certain amount of
y. But the market actually requires the individual
to give up less. This is a beneficial trade. The individual
would thus take the unit of x and be happier for the

5
Utility Maximization

d

a     b
c
In the final analysis, the individual maximizes utility
when the indifference curve is tangent to the budget line.

Tangent means equal slopes.

6

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