Consumer Choice Theory

Calculate total and marginal utility from a consumption schedule and verify the law of diminishing marginal utility.

Construct a budget line from price and income data and interpret its slope as the relative price ratio.

Construct an indifference curve from a utility schedule and interpret its slope as the marginal rate of substitution.

Solve for the optimal consumption bundle using the tangency condition between an indifference curve and the budget line.

Derive a consumer's optimal consumption bundle by applying the equi-marginal principle (MUx/Px = MUy/Py).

Calculate the new optimal consumption bundle following a change in consumer income.

Decompose the effect of a price change on consumption into its income and substitution effects.