Optimal Choice as a Balance Between Two Trade-Offs
Economic models of choice assume that individuals select the best possible option from their feasible set of combinations of goods. To model this, an individual's preferences are described using indifference curves, while their constraints are represented by a feasible set or budget constraint. The optimal, utility-maximizing choice is found at the tangency point between the feasible frontier (the boundary of the feasible set) and the highest attainable indifference curve. At this point, the subjective trade-off rate (Marginal Rate of Substitution, MRS) is equal to the objective trade-off rate (Marginal Rate of Transformation, MRT).
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Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
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Optimal Choice as a Balance Between Two Trade-Offs
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