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Given that we have limited incomes, we have to make choices. It is not just a question of choosing between two obvious substitutes (like apples and bananas), but about allocating our incomes between all the goods and services we might like to consume. If you have, say, an income of $15 000 per year, what is the optimum ‘bundle’ of goods and services for you to spend it on?
The equi-marginal principle
A consumer is said to be in equilibrium, assuming a given level of income, when it is not possible to switch any expenditure from, say, product A to product B to increase total utility.
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