Maximizing Utility
As already noted, economists assume that consumers try to make
themselves as well off as they possibly can, given their circumstances. In
other words, consumers seek to maximize their total utility subject to the
constraints they face—in particular, their income and the market prices of
various products.
The Consumer’s Maximizing Decision
Now that we have introduced the concepts of total utility and marginal
utility, we are ready to examine how someone like Alison could consume
two goods, juice and burritos, in a way that maximizes her utility. Of
course, we could ask the same question about any two goods, or any
number of goods, but we will focus on juice and burritos to keep the
example simple.
We begin with the answer: A utility-maximizing consumer should
consume juice and burritos to the point at which the marginal utility
dollar spent on the last juice is just equal to the marginal utility per dollar
spent on the last burrito.
A utility-maximizing consumer allocates expenditures so that the marginal utility from the last
dollar spent on each product is equal.