Isexamining the intersection of budget lines and indifference curves avalid means of assessing consumer behavior? Why or why not? How doesyour analysis of this topic apply to making business decisions?
Indifferencecurve shows the combinations of goods that give the same level ofutility or satisfaction so that the consumer becomes indifferentabout the bundle of goods to choose (Kos & Vida, 2011). A budgetline shows the budget constraint which measures the limits of incomethat maximize consumer’s buying behaviour. The intersection of thebudget line and the indifference curve gives the equilibrium of theconsumer where he achieves the highest indifference curve consideringhis available income (Földes et al, 2011). This intersection istherefore a valid means of assessing the consumer behaviour becauseit shows the most feasible point for the consumer where he canachieve the highest level of utility with the available amount ofincome. Beyond the point intersection, the consumer does not affordthe product because he or she has less income than the worth of thecombination of goods (Kos & Vida, 2011). Below the point oftangency, the consumer does not achieve maximum utility. This pointof tangency between the budget line and the indifference curvetherefore gives the consumer the right decision to make whenpurchasing goods hence determining his best behaviour.
Analysisof this topic applies to making business decisions because it enablesbusiness decision makers to good decisions that involve using theleast amount of money to achieve the highest utility (Hands, 2011).In this case, the largest amount of goods is bought using the leastamount of income. It enhances economic efficiency when makingbusiness decisions which involve acquisition or purchase of products.In other words, it enhances efficient utilization of resources toachieve the highest benefit or returns.
Földes,M.E., Canoy, M., & Langejan, T. (2011). Consumer choice: Newdevelopments in the health care sector in Europe. EuropeanJournal of Law of the Consumer, 4,703-802.
Hands,D.W. (2011). Back to the Ordinalist Revolution: Behavioral EconomicConcerns in Early Modern Consumer Choice Theory. Metroeconomica,62(2),386-410.
Kos,K.M., & Vida, I. (2011). Consumer strategic decision making andchoice process: Prefabricated house purchase. InternationalJournal of Consumer Studies, 35,634-643.