Demand and consumer choice

Principles behind Consumer Choice

• Limited income versus unlimited desires necessitates choices.
• Make rational choices to achieve goals.
• Can substitute between “like” goods.
• Make decisions based on less than perfect information.
• Law of Diminishing Marginal Utility: the additional utility derived eventually declines as
  consumption of a good increases.
  

Consumer Behavior in making Choices

• Consumer will continue to consume the goods until the marginal utility of consuming the good
  just equals the price of the good.
  

Consumer Demand Curve:

• Diminishing Marginal Utility implies that the amount demanded by the consumer falls as the
  price of a good rises.

Note:

• Income effect and substitution effect are associated with change in price.