what provides us with the greatest level of satisfaction. The vocabulary of comparing the points along a budget

constraint and total and marginal utility is just a set of tools for discussing this everyday process in a clear and

specific manner. It is welcome news that specific utility numbers are not central to the argument, since a good

utilimometer is hard to find. Do not worry—while we cannot measure utils, by the end of the next module, we

will have transformed our analysis into something we can measure—demand.

6.2 How Changes in Income and Prices Affect Consumption Choices

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Explain how income, prices, and preferences affect consumer choices

• Contrast the substitution effect and the income effect

• Utilize concepts of demand to analyze consumer choices

• Apply utility-maximizing choices to governments and businesses
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