Model of Consumer Behavior: Law of Demand

Ted Black

Consumer Economics

Microeconomics

Interactive Tutorial

Consumer behavior using Income constrained utility maximization provides a specification for the consumers objective function. The resulting quantities of two available goods that are selected using this algorithm maximize satisfaction given income. Using this model of consumer behavior shows that the resulting maximizing quantities of a good that correspond to different prices are those that demonstrate the inverse relationship between price and quantity demanded. Studens are expected to understand the following aspects of the graphical depiction of the law of demand using income constrained utility maximization: the effect of changing a product price on the income restraint; the consequences of changes in the product prices on the utility maximizing quantity of the product; how to derive the Law of Demand using a set of product prices and the model of consumer behavior (income constrained utility maximization).