The Best Option A choice involves deciding in favor of one option and discarding others. A budget constraint limits the options from which people can choose. To make the best decision, a person must choose the option that is both possible and that contributes most to the achievement of that person's goals. Although it is easy to show the budget constraint with a table or graph, showing goals is a bit more difficult. For the purpose of illustrating some important ideas, this section will assume that goal-attainment can be measured in some unit of satisfaction or utility. The table below gives an example by using an imaginary measurement called the util. Benefits Measured in Utils Amount Utils from Shirts Utils from Hamburgers 1 11 8 2 20 15 3 27 21 4 31 26 5 32 30 Our second table expands the first to show utility for various combinations of shirts and hamburgers. Thus, one shirt and three hamburgers give 32 utils of satisfaction (because 11 utils from shirts plus 21 utils from hamburgers equals 32 utils). The person gets the same level of satisfaction from five shirts and no hamburgers. The person whose wants are described in this table should find these two combinations of equal value, or, to anticipate a term, he will be indifferent between them. A Utility Function Number of Shirts . 5 32 40 47 53 58 62 4 31 39 46 52 57 61 3 27 35 42 48 53 57 2 20 28 35 41 46 50 1 11 19 26 32 37 41 0 0 8 15 21 26 30 . 0 1 2 3 4 5 . Number of Hamburgers The consumer wants to get as much utility as possible, but a budget constraint limits him. In the table above the budget constraint is drawn so that the person can have only five items. Looking at all combinations possible, that is, to the left of the budget constraint (the numbers in red), you should see that the combination three shirts and two hamburgers maximizes utility. This combination yields 42 utils and no other combination that is allowed by the budget constraint gives more. This simple problem can be solved in another way, with the maximization principle. The advantage of the second solution is that it gives insight into a whole range of problems. Copyright Robert Schenk