Purpose:

Objectives:

1. The amount of a good that consumers purchase depends on how much they value it in relation to the selling price.
   
   
   1. The more units of a good an individual (or society in general) has consumed in a given period, the less he or she values an additional unit (diminishing marginal utility).
   2. If the value the consumer places on an additional unit of a good is less than the selling price, he will not purchase it.
2. At a given price, consumers will generally demand more of a good if their income rises, if the price of a substitute good rises, if the price of a complementary good falls, or if consumers’ tastes change in favor of the good in question. All these factors will shift the demand curve.
3. As producers expand production they may initially experience economies of scale, but as they continue to expand production the cost of producing each additional unit will increase.
4. A firm will not maximize its profits if it expands production past the point at which the additional cost per unit is greater than the revenue earned by selling that unit (the marginal revenue = marginal cost criterion for profit maximization).
   
   
   1. If the selling price increases, firms will produce more units of output because they will then be able to make a profit on these units.
   2. If the costs of production increase, firms will produce fewer units.