The previous chapter showed that consumer behavior is motivated by utility maximization and that consumer choices are very much a function of income and prices. These principles of consumer behavior lay the foundation for one-half of the most widely used model in all of economics: supply and demand.
After completing this chapter, the student should be able to:
1. Make the connection between utility-maximizing behavior, the law of demand, and the downward-sloping demand curve.
2. Understand how the determinants of demand shift demand curves outward or inward.
3. Compute and interpret the price elasticity of demand and relate this to the total revenue of a firm.
4. Compute and interpret the cross-price and income ...