The Analysis of Consumer Choice
3. Utility Maximization and Demand
3.5. Key Takeaways
- Individual demand curves reflect utility-maximizing adjustment by consumers to changes in price.
- Market demand curves are found by summing horizontally the demand curves of all the consumers in the market.
- The substitution effect of a price change changes consumption in a direction opposite to the price change.
- The income effect of a price change reinforces the substitution effect if the good is normal; it moves consumption in the opposite direction if the good is inferior.