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We have introduced the demand curve as a representation of the law of demand, but in this chapter we will construct the demand curve from the ground up. We will examine the role played by individual households in determining market outcomes. By the end of this chapter, you should be able to answer the following questions: 1. What roles do prices, income, and wealth play in constraining choice? 2. How does a budget constraint represent opportunity cost? 3. What is utility and how does it relate to household behavior? 4. What is the rule for maximizing utility? 5. How can the income and substitution effects be used to derive the law of demand? 6. How do changes in wages affect people’s decisions about how much they should work?
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