Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 21 of 36 The Theory of Consumer Choice Section 4 of 26 … Figure 2 - The Consumer's Preferences¬ The consumer's preferences are represented with indifference curves These show the combinations of pizza and Pepsi that equally satisfy the consumer. Because the consumer prefers more of a good, points on the higher I2 indifference curve are preferred to points on the lower I1 indifference curve The marginal rate of substitution · measures how much Pepsi the consumer requires to be compensated · for a one unit reduction in pizza consumption … Here we consider how consumers make choices. The budget constraint of the previous section is one piece of the analysis. It shows the combinations of goods the consumer can afford given his income and the prices of the goods. The consumer's choices depend on · his budget constraint · his preferences for the two goods … A con...