Microeconomics For Dummies

Chapter 5

Considering the Art of the Possible: The Budget Constraint

In This Chapter

Checking out how a budget constraint affects consumer choice

Seeing how consumers want to push utility to the maximum

Modeling consumer behavior in two ways

Chapter 4 discusses consumer behavior in terms of what’s called unconstrained optimization, where the only limiting factor is the amount of utility a person achieves. Ah, such freedom!

In the real world, of course, you never quite have the time and money to accomplish all the things you want to. You could always achieve something else if it wasn’t for those pesky constraints, such as buy an item if you weren’t just so short of moolah. So, in reality, satisfying your wants can never be as simple as Chapter 4’s model: In practice you may be unable to consume anything up to your bliss or saturation point where you no longer gain further utility.

Almost nothing in economics works in an unconstrained model. At some level, everything is constrained, if not by money then by time. When you’re deciding how much of something to consume, your utility isn’t the only important aspect; you also need to consider the availability of resources.

Fortunately, ...