ECON 101 Lecture Notes - Lecture 30: Demand Curve, Marginalism, Inferior Good
Document Summary
Main reason for studying consumer behavior is to explain how the utility-maximizing behavior of individual consumers leads to the downward slope of the market demand curve. Marginal utility, the substitution effect, and the law of demand. Marginal utility per dollar spent changes decreases: an incentive to consume fewer of that good. Utility-maximizing principle of marginal analysis: consumer chooses consumption bundle for which the marginal utility per dollar spent on all goods is the same. If price of clams rises, marginal utility per dollar spent on clams falls. Consumer can increase his utility by purchasing fewer clams and more of the other goods. If price of clams falls, marginal utility per dollar spent on clams rises. Consumer can increase her utility by purchasing more clams and less of other goods. When price of a good increases, consumer will consume less of that good and more of the other goods.
