Economics Assignment: Consumer Behavior and Utility in Detail

This economics assignment explores consumer behavior through the lens of indifference curves, budget lines, and utility maximization. The assignment examines a student's preferences between tea and coffee, illustrating the concept of substitute goods and the shape of indifference curves. It then delves into budget constraints, contrasting the consumption of organic versus packaged foods and their impact on the budget line. Finally, the assignment discusses the application of the utility maximization rule, explaining how rational consumers allocate their spending to achieve the highest marginal utility from their chosen goods, such as organic and packaged food, given a fixed budget. The solution references key economic concepts and includes a budget line diagram to visually represent the economic principles discussed.

Running Head: ECONOMICS 1
Economics
Name of the Student
Name of the University
Author Note

Running Head: ECONOMICS 2
Table of Contents
1. Indifferent between two goods...............................................................................................3
2. Change in budget for two goods............................................................................................3
3. Time of applying utility maximisation rule...........................................................................4
References..................................................................................................................................5

Running Head: ECONOMICS 3
1. Indifferent between two goods
I am a tea loving person; however, when the price of the tea is starting to increase I switch
my preference and start to have coffee instead of it. Since, coffee is the substitute good of
team. As per the law of demand, if the price of normal good would start to increase, then the
people are inclined to choose and purchase the substituted good (Foxall, 2017). This is the
reason why the indifference curve of these goods will be looked like ‘L’ and it is convex to
origin.
2. Change in budget for two goods
I usually prefer to have healthy organic food over the oily and junk food. However, the price
of the healthy organic food is comparatively high. Therefore, it is always not possible to have
organic food. Usually in dinner and lunch, I preferred to have organic foods and vegetables
more, whereas in breakfast I am relying upon packaged food. Therefore, the income is not
spent for the purchasing of organic food; it is also spend for the purchasing of packaged food.
Figure 1: Budget line
(Source: Biederman, 2015)
As per the above diagram, OB shows the measurement of purchasing organic food, while OL
shows the quantity of the purchasing of packaged food.

Running Head: ECONOMICS 4
3. Time of applying utility maximisation rule
I think when the consumers are rational and when they are looking for experiencing the
utmost value of money, I need to apply the utility maximisation rule. This is the reason, why
they divide their spending within the consumable items and can enjoy the maximum marginal
utility (Biederman, 2015). As I said earlier, the goods were organic food and packaged food,
which are purchased proportionately for maximising the utility. Since, the budget is constant;
therefore, if I would like to increase the purchasing percentage of organic food more, then I
need to sacrifice the purchasing of similar percentage of packaged items and in turn I would
maximise the marginal utility from it.

Running Head: ECONOMICS 5
References
Biederman, D.K., 2015. A strictly-concave, non-spliced, Giffen-compatible utility
function. Economics Letters, 131, pp.24-28.
Foxall, G. (2017). Advanced introduction to consumer behavior analysis. Edward Elgar
Publishing.