Economics chapter 6

Budget line -- the line connecting all the combinations of two goods that exhaust the consumer's budget
budget set -- a set of points that includes all the combinations of goods that a consumer can afford, given the consumer's income and the prices of the goods
price ratio -- the ratio of the price of one good to the price of a second good; the market trade off
indifference curve -- a curve showing the different combinations of two goods that generate the same level of utility or satisfaction
utility -- the satisfaction experienced from consuming a product
marginal rate of substitution (MRS) -- the rate at which a consumer is willing to trade or substitute one good for another
indifference map -- a set of indifference curves, each with a different utility level
utility-maximizing rule -- picks the affordable combination that makes the marginal rate of substitution equal to the price ratio
equimarginal rule -- pick a combination of two things that equalize as the marginal benefit per dollar spent


The consumer's objective is to maximize utility, given their income in the prices of consumer goods.

To maximize utility, the consumer finds the point at which one of her indifference curves is tangent to her budget line.

At the utility- maximizing combination of two goods, the marginal rate of substitution (the consumers and trade off between the two goods) equals the price ratio (the market trade off).
According to the equimarginal rule, you should pick the mix of two things at which the marginal benefit per dollar spent on the first equals the marginal benefit per dollar spent on the second.