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Illustrate these concepts with the use of a budget line in a two good universe w...

Oct 30, 2023

Illustrate these concepts with the use of a budget line in a two good universe while mentioning diminshing marginal utility.

answer: A budget line is a graphical representation of the different combinations of two goods that a consumer can afford given their income and the prices of the goods. It shows the maximum quantity of one good that can be purchased for each quantity of the other good, while staying within the consumer's budget constraint. Diminishing marginal utility refers to the concept that as a consumer consumes more of a good, the additional satisfaction or utility derived from each additional unit of the good decreases.

Key Concept

Budget line and diminishing marginal utility

Explanation

The budget line shows the different combinations of goods that a consumer can afford, while diminishing marginal utility explains how the satisfaction derived from each additional unit of a good decreases.

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