How Much

What we are doing here is another example of the economist's analytic method, although it looks a little different. We have divided the influences on John's spending into two categories: the subjective influence -- that is, preferences -- and the objective influence -- that is, limited income and prices. The next step, as always, is to put them together in a single diagram. Here it is:

Figure 3: Optimal Spending

Remember, John can afford to buy any combination on or below the budget line, but he cannot buy any combination above it. So the highest indifference curve he can get to is curve II, and there is only one way for him to get it. That is to buy exactly 1 wing and 15 fries. If John buys any different combination (that he can afford) he will be on a lower indifference curve -- which is another way of saying he prefers that combination to any other combination that he can afford.

Marginal Rate of Substitution