Utility Maximization and Demand Curve
Utility maximization rule
Utility maximization rule refers to the maximum satisfaction consumers have while spending their money. It indicates that the money from the income should be allocated in such a way that even the last money of the income spent should yield maximum utility. The marginal utility of each of the money spent should be equal to each product the consumers buy.
The theory of consumers’ pattern of buying uses the law of diminishing marginal utility
, it explains on how the consumers allocate their income. The utility maximization model is based on some assumptions, they are:
As the consumers income is limited due to limited resources so they face a budget constraint.
Consumers are believed to be rational, trying to make the most use of their income.
All the commodities have price tags and consumers should buy alternative goods according to their income.
Consumers have clear choices of the goods they want to buy and the services that they want to avail thus, they know the marginal utility of the units of products.
Deriving the demand schedule and curve
Demand schedule and demand curve in economics represent the relationship between the price and quantity demanded that can satisfy all types of entrepreneurs. Both state the relationship between the price or service of a product and the demand of that product or service. The income of the consumer also influences the demand but the demand schedule and demand curve consider only the price and neglects all other factors.