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MARGINAL UTILITY AND DEMAND: An explanation of the law of demand and the negatively-sloped demand curve can be found in the analysis of marginal utility and especially the law of diminishing marginal utility. This explanation rests on two propositions. One, the law of diminishing marginal utility means that the marginal utility obtained from consuming a good declines as the quantity consumed increases. Two, the marginal utility of a good underlies the demand price that buyers are willing and able to pay for a good. When combined, these two propositions indicate that the demand price buyers are willing and able to pay for a good declines as the quantity demanded (and consumed) increases. And this is the law of demand.
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CONSTRAINED UTILITY MAXIMIZATION The process of obtaining the highest possible level of utility from the consumption of goods or services, under given restrictions, when the highest overall level of utility cannot be reached. The notion of constrained utility maximization is a modification of the more general utility maximization assumption. It is based on the recognition that consumers might be restricted from achieving the absolute maximum level of utility. The primary restrictions tend to be the amount of income available relative to price paid. Constrained utility maximization generally does reach the peak of the total utility curve.
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GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time at a going out of business sale looking to buy either a wall poster commemorating the 2000 Olympics or a flower arrangement with a lot of roses for your grandmother. Be on the lookout for broken fingernail clippers.
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There were no banks in colonial America before the U.S. Revolutionary War. Anyone seeking a loan did so from another individual.
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"When the solution is simple, God is answering." -- Albert Einstein
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AEA
American Economic Association
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