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However, each unit of higher consumption tends to result in fewer benefits for individuals, following a pattern of diminishing marginal utility. There are numerous techniques to identify the utility-maximizing option under a consumption budget limitation.
On the budget line, you can add up the total utility of each option and select the one with the highest total.
What option, given the initial budget constraint, maximizes utility?
M is the option that maximizes utility under the first financial restriction. You can quickly see if the number of items consumed under the new budget limitation is larger or lower than under the prior budget constraint thanks to the dashed horizontal and vertical lines that extend through point M.
How Does Income Change Affect Consumption Decisions?
M is the option that maximizes utility under the first financial restriction. You can quickly see if the number of items consumed under the new budget limitation is larger or lower than under the prior budget constraint thanks to the dashed horizontal and vertical lines that extend through point M.
Learn more about budget constraint
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