You are here

Utility Maximization and Demand

24 April, 2015 - 11:52

Learning Objectives

  • Derive an individual demand curve from utility-maximizing adjustments to changes in price.
  • Derive the market demand curve from the demand curves of individuals.
  • Explain the substitution and income effects of a price change.
  • 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— generallyproduce downward-sloping demand curves. This section shows how an individual’s utility-maximizing choices can lead to a demand curve.