The Analysis of Consumer Choice

Read the Introduction and these two sections. Attempt the "Try It" problems at the end of each section. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

3. Utility Maximization and Demand

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.