Chapter 10, Problem dWYWL

To determine

To answer:

What is the optimum consumption bundle and why do we use marginal analysis to determine it

Concept Introduction:

Consumption bundle: This is defined as the set of goods that are available for the consumers to purchase.

Consumption possibilities: This shows a consumer the choice of goods and services available to him with his income and prices of other goods.

Budget line: This shows the various combinations of goods and services that can be purchased with the given level of income and considering the prices of other products

Indifference curve: The indifference curve is a line showing all possible combinations of two goods which give the consumers equal satisfaction. In other words, the consumer would be indifferent in these points

Marginal Analysis: Marginal analysis is used to compare the benefits and costs derived out of a specific action. The marginal changes refers to the small incremental adjustment to a plan of action