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

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.