Student ID: 10181958 Tutor: Yan Song

Above is a picture of me and my friends hiking. This is one of the ways I prefer to spend my leisure
time.

On this particular day, I chose to spend several hours in the Peak district as supposed to studying for
my January exams. Being able to manage my time in a way that lets me study sufficiently but also
enjoy myself has been a re-occuring theme throughout my time at University so far, and is a decision
that can be analysed through consumer theory.

Consumer theory aims to understand and predict consumer behaviour under constraints such as
time and income. It assumes that each consumer aims to maximise their utility (well being)
whenever faced with a choice. Their unique preferences can be said to ‘guide’ their decision on
which bundles of goods to consume.
Student ID: 10181958 Tutor: Yan Song

To represent my dilemma between spending time studying or on leisure , we can use an indifference
curve, as shown by the diagram below:

An indifference curve is an ordinal representation of a utility function that shows all the possible
bundles of two goods that lead to the same utility (completeness).

In this context, the indifference curve ‘I1’ maps out all of the combinations of hours spent studying
and hours spent on leiusre that would give me the same utility.

Indifference curves have several features.

Firstly, they are always downwards sloping to show that more is better for the consumer.They’re
also thin and don’t cross over eachother. These features reinforces the idea that preferences exhibit
transitivity (the idea that consumers’ decisions remain logical, for example if a > b and b > c, then a >
c). LastIy, and intuitively, it goes that indifference curves further from the origin portray higher levels
of utility.

The purpose of indifference curves is to not only show us which bundles of goods will give the
consumer the same utility, but to also show the wilingness of the consumer to substitute an amount
of one good for one extra unit of the other good. We call this the Marginal rate of Substitution
(MRS). This is shown by the gradient of the Indifference curve.

In my situation, the MRS shows how willing I am, at any point on the curve, to sacrifice leisure time
(in hours) for an extra hour of work.
Student ID: 10181958 Tutor: Yan Song

My MRS between hours spent working and leisure can be calculated as below:

𝜕𝑈⁄
𝜕𝑞1
𝑀𝑅𝑆 =
𝜕𝑈⁄
𝜕𝑞2

Or more simply put:

𝑑𝑞2
𝑀𝑅𝑆 =
𝑑𝑞1

Where q1 is leisure time (in hours) and q2 is hours spent studying. For the purpose of demonstration
we can assume that my indifference curve takes the form of a Cobb Douglas utility function, which
represents an imperfect indifference curve. Assuming this, my utility function would be:

𝑈(𝑞1 , 𝑞2 ) = 𝑞1 𝑎 𝑞21−𝑎

And so my MRS would be :

−𝑎 (𝑞2 )
1 − 𝑎 (𝑞1 )

Where ‘a’ represents a number between 0 and 1.

My MRS also shows me how my willingness to exchange between hours spent on studying and
leisure changes in different situations. It’s evident that as I have less of a good, whether it be time
spent working or time spent relaxing, I’m reluctant to trade it away for a unit of any other good.
However when I have an abundance of a good, I’m comfortable to sacrifice an amount of it for an
additional unit of any other good. This is what we call the Diminishing marginal rate of substitution.

Despite my preferences, I have to accept that I will always be constricted by the time there is in one
day. This is represented by the B1 schedule which shows us all the combinations of time spent
studying and leisure that are within my capacity. The slope of the gradient represents my Marginal
Rate of Transformation (MRT), which is my ability to convert time spent studying into leisure time.
Therefore, point A on the graph represents a tangible situation where I can maximise my utility. At
this point, the MRS and MRT are equal.
Student ID: 10181958 Tutor: Yan Song

My picture also bears significance in a wider context. The Peak district is one of many national parks
in the UK, and is what we might consider a common access resource (to an extent). Common access
resources are rivalrous, yet non-excludable. This combination of qualities unavoidably leads to the
tragedy of the commons, where natural resources become degraded overtime due to inevitble
exploitation.

To avoid this, we might consider how the park should be mantained. Some argue that the
government should be entirely responsible for overseeing common access resources such as the
Peak district, whereas others believe they should be managed by private companies. The
government’s tendancy to be blinded by political power and firms’ drive for profit prove that there
are complexities involved with such a decision, which is why mixed management is becoming an
increasingly popular idea.