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Utility Maximization and Demand

15 January, 2016 - 09:45
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LEARNING OBJECTIVES

  1. Derive an individual demand curve from utility-maximizing adjustments to changes in price.
  2. Derive the market demand curve from the demand curves of individuals.
  3. Explain the substitution and income effects of a price change.
  4. Explain the concepts of normal and inferior goods in terms of the income effect.

Choices that maximize utility—that is, choices that follow the marginal decision rule— generally produce downward-sloping demand curves. This section shows how an individual’s utility-maximizing choices can lead to a demand curve.

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