Indifference

Indifference is when we have two good that we would be perfectly happy consuming in different combinations. We try to obtain the highest amount of the good without going into the unattainable. The relationship between the goods tells us which combination the consumer would be satisfied with. The indifference concept goes along with the way a consumer will substitute another good for the first good. This concept is called the marginal rate of substitution. This is the rate at which a person will give up one good to get more of the other wile staying on the same indifference curve.

On a graph, the consumer wants to attain the highest indifference curve. This curve is the one that only hits the budget line at one point. In attaining this curve, the consumer must maximize their budget and also find the perfect balance between the two goods. This point is where the marginal rate of substitution and relative price equal. The marginal rate of substitution tells you how many unit you are willing to give up to get the other good.

Maximize Utlitiy

Every person wants to maximize their whole benefit in consuming. When they buy a good they want the benefit to be the greatest it can possibly be. There are a few different way to get a maximized utility and benefit completely from buying goods. One way is to allocate the whole budget. First the consumer can choose to put money into savings and also make the appropriate payments but the money left over should be all spent on goods and services. If you spend all your money you are more likely to get the greatest amount of utility from consuming the most amounts of goods. The second way to maximize utility is to make sure that marginal utility is the same per dollar for all goods. Basically, if the consumer feels more benefit from one good over another they should consume more of that good rather than another. For example if the marginal utility of milk is 8 and the marginal utility of incense is 4, than the consumer should consumer more milk and less incense so they will completely maximize their utility.

This concept also goes along with the Paradox of Value. The Paradox of Value is the difference between total utility and marginal utility. Total utility tells us about value where marginal utility tells us about price. An example is water and diamonds. Water has a high total utility and a low marginal utility where diamonds has a low total utility and a high marginal utility.

Relative Price

Relative price is when changes in the relative price lead to changes in consumption choices. If a good that is valued by consumers suddenly has a lower cost then the consumers are likely to buy more of that good. In consuming more of that good, the consumer will have to cut other goods to balance out their budget and spending. The consumer sees that good as a higher utility and gets a greater benefit from consumer more of that good.
For example, if Publix is having a buy one get one sale of coca-cola consumers are more likely to buy coca-cola than any other soda brand. The price of each bottle of coke is lower than then normal price the consumer will buy more of it to reduce how much they have to pay in the future. Their budget will decrease but in the long run buying more of the sale soda is smarter because it will reduce the price they pay on soda overall.