Question

How do economists use the concepts of marginal utility and budget constraints to construct demand curves and determine the distribution of consumer spending? Discuss how marginal utility analysis can help you understand the purchasing patterns of a product or service you commonly buy. What might happen to your purchases if the price of the product changes, the price of a substitute product changes, or your income changes? Or if your tastes and preferences change?

Answer 1

Marginal utility is the satisfaction that a consumer gain by buying one more unit of service after the required units.

The indifference curves shows the effect of change in marginal utility due to budget constraints.If there are two products X and Y . The consumer buys product X every time. If the product price increases of X without change in income of consumer than the consumer will either go for product Y as it is better for him or he will buy less quantity of product X. Thus this how budget contraints the marginal utility and the economists use this concept depending of the price of the product income of consumer and demand for that product in the market.

Now if the price of the product X increase and consumer income also increase he will buy the same product X.

If the price of substitute product Y changes it may or may not effect as they are also having other constraints such as product of X demand for product Y should also change.

If the demand for Y increases due to decrease in price of Y the consumer may show intrest to buy the product.