ECON201 Lecture Notes - Lecture 5: Cardinal Utility, Siriusxmu, Demand Curve

• School: University of Waterloo
• Department: Economics
• Course: ECON201
• Professor: Corey Vande Waal

Document Summary

With warp under our belts, we will turn our attention to two theories of demand that use preferences to infer demand (cardinal utility theory and indifference curve theory). Both of these theories are built on the assumption that consumers act in their own best interests so as to maximize their total utility (tu). Both theories suggest that at p1 a consumer. Reports the quantity q1 as the quantity that maximizes their total utility at that price. If prices were to fall to p2 the consumer no longer maximizes their total utility at q1, but reports the quantity q2 as the quantity that maximizes their total utility at that price. This process is repeated for every possible price, mapping out the individual"s demand curve for the good. We can now think of a consumer"s demand curve as a locus of (equilibrium) points, in price- quantity space, that maximizes the consumer"s total utility (tu).