TOPIC 3
Consumer Choice and the Law of Demand

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The theory of economics must 
 begin with a correct theory of
consumption. óW.S. Jevons

So, that's what we'll try to do here. Our objective in this topic is to understand:

    • how a consumer goes about deciding how much of different goods to buy in order to maximize his or her total satisfaction, given available income.
    • why a consumer will tend to buy more of a good when its price is lower and less when its price is higher.
    • how the responsiveness of changes in quantity demanded to changes in price can be measured, the concept of price elasticity of demand.
    • the concept of "consumer surplus"
    • how the theory of consumer behaviour based on "utility" can be replicated using "indifference curve analysis".


Copyright 1999 K.J. Rea