MODULE 51

Utility Maximization

In this Module, you will learn to:

• Describe how consumers make choices about the purchase of goods and services

• Explain why consumers’ general goal is to maximize utility

• Explain why the principle of diminishing marginal utility applies to the consumption of most goods and services

• Use marginal analysis to find the optimal consumption bundle

We have used the demand curve to study consumer responsiveness to changes in prices and discovered its usefulness in predicting how consumers will gain from the availability of goods and services in a market. But where does the demand curve come from? In other words, what lies behind the demand curve? The demand curve represents the tastes, preferences, and resulting choices of individual consumers. Its shape reflects the additional satisfaction, or utility, people receive from consuming more and more of a good or service.