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I am trying to understand consumer behavior in microeconomics. Consider a market basket of food and clothing. Utility / Satisfaction of 200 gram food + 2 shirts is always supposed to be greater than that of 100 gram food + 1 shirt, because 'more is better'. So the 1st combination lies on an indifference curve that is outward with respect to the 2nd combination.

But, just in theory, if my basket consists of only 1 item (food). At some point more of food will be less of utility - I can't keep on eating more and more. In Krugman's book there is an example of a utility function that actually rises, plateaus and then starts dipping, which is intuitively right, but then violates 'more quantity is more satisfying'. In Pindyck's book this scenario is carefully avoided, and the discussion jumps straight into indifference curves.

It looks like an indifference curve is impossible without at least two items (since there is a question of marginal substitution also - how can one substitute with only 1 item?). But would it not be true that even with 2 items the utility function should rise, plateau and dip, and so, some indifference curves with more quantity of both items should lie inward of another one with less? (Think 2 items - burgers and soft drinks - I have 2 burgers with 2 bottles, then 3 + 3, 4 + 4, etc., .. at some point lets say 5 + 5, will be less satisfying, and so the 5 + 5 indifference curve will be below the 4 + 4 one. A diagram in Pindyck implies that 4 + 4 will always be on a shaded quadrant below the quadrant of 5 + 5 - this is non-intuitive.)

Could someone explain what appears to me like a paradox?

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  • $\begingroup$ How is 'more quantity means greater satisfaction' a paradox, in consumer behaviour or anywhere else? $\endgroup$ Sep 25, 2023 at 20:14

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It is not a paradox.

First, there is no economic law or theory that states more is always in every situation better, and it is not a requirement of indifference curves either.

For example, if you have two commodities in which people can get satiated like pizza slices or cola, you will just get indifference curves that curve on themselves and create circles or ovals, where higher utility will be attained the more inward you get. Here is example of such indifference curve (image source is economicsdiscusion.net).

enter image description here

Second, generally speaking virtually all people prefer more consumption to less when we deal with general composite goods. For example, I think you would have to search far and wide to find person who would refuse extra 1 million dollars. Dollars can be only used to get either present consumption or though saving or investment future consumption. Hence, once we are dealing with composite goods typically more is always better, otherwise at some point people would start refusing free money.

In that case utility function will have general properties that $U'_x>0$, $U''_{xx}<0$, $U'_y>0$ and $U''_{yy}<0$ where $x$ and $y$ are some composite goods such as let's $x$ could be basket of produced goods and services and $y$ basket of some natural goods such as air quality etc.

In most economic problems the issue of satiation is not very relevant. For example, in macroeconomics it does not appear at all except perhaps some rare instances, and even in microeconomics it is relevant just to some isolated problems. As a result some undergraduate books just work with assumption that more is always better, but the textbook should not state that as a general economic law. Some books try to inject more nuance such as Krugman's book, but unfortunately this sometimes creates confusion as such books often don't have time to explain behavior of indifference curves in the instances where consumers get satiated.

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