Utility maximization problem: Difference between revisions

Revision as of 11:42, 5 May 2022

Revision as of 05:05, 13 June 2022

Line 49:

=== 2) 'Bang for buck' ===

[[Bang for the buck|Bang for buck]] is a main concept in utility maximization and consists of the consumer wanting to get the best value for their money. If Walras's law has been satisfied, the optimal solution of the consumer lies at the point where the budget line and optimal indifference curve intersect, this is called the tangency condition.<ref name=":0">{{Cite book|last=Board|first=Simon|title=Utility maximization problem|publisher=Department of economics, UCLA|year=2009|pages=10–17}}</ref> To find this point, derivedifferentiate the utility function with respect to x and y to find the marginal utilities, then divide by the respective prices of the goods.

<math> MU_x/p_x = MU_y/p_y</math>