Model of Consumer Behavior: Law of Demand
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The law of demand states that if price declines, then the quantity demanded of the product will increase. The inverse relationship between price and quantity leads to the downward sloping demand curve. This section provides a graphical derivation of the law of demand.
The process of income constrained utility maximization leads to a level of consumption such that the consumer attains the highest level of satisfaction given their budget. This assumes prices are constant. If one product price is lowered, a new budget restraint is defined along with the corresponding utility maximizing quantities that conform to those shown in the demand schedule.
Deriving the
law of demand using
indifference curve analysis shows the inverse relationship
between price and quantity demanded.