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Principles of Microeconomics Consumer Theory - It possible to describe the choices of consumers Consumer can refer to a family or it can refer to the government of a country too He can choose form only 2 products x and y Products refer to a singe product or service that is consumed a group products X could represent consumer goods and y capital goods Consumers have limited resources They wish to have more of y and they give up some of x and vice versa Y The total budget y has to be spent on the 2 products Budget p q Px and Py the price of the products qx and qy the quantities consumed Budget line is Y px qx py qy Utility Indifference Curves We assume that customers are able to choose from two alternatives that offer the same products in different quantities The total utility of a consumer increases as the amount of products consumed increases every additional units consumed adds less and less to the total utility of the consumer If a Consumers consume 2 different products x y total utility function is an increasing function of the quantity consume qx qy U qx qy Indifference Curve shows all product combinations of x y that give the same satisfaction level to the consumer The Collection of indifference curves is Indifference Map U each person have different level of satisfaction Utilities The higher the indifference curve the higher is the level of satisfactions of the consumer At point E customer consumes more x and less y choosing B
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