🧾 Consumers' Optimal Bundle Choice

Q: What is the budget constraint?

The set of bundles a consumer can afford: PxX+PyY=I

• Px = Price of good x

• x = quanity of good x you buy

• Y = same

• I = total income or budget

Q: What is the condition for the optimal bundle?

A: Equal marginal utility per dollar: ​MUx/Px​​=MUy/Py

Q: What does utility maximization mean?

A: Choosing the bundle that gives the most utility within a budget.

Q: What is the "bang for your buck" condition?

A: Spending should equalize MU per dollar across goods.

Q: What is expected utility?

A: The probability-weighted utility of uncertain outcomes.

Q: What is risk aversion?

A: Preference for certain outcomes over risky ones with the same expected value.

Q: What is a risk premium?

A: The amount a person would pay to avoid risk (expected payoff − certainty equivalent).