To Buy or Not To Buy:
Conclusion & Summary


The demand side of the market is one of the black boxes. A look inside it reveals the machinery of "marginal utility," invented about a century ago. The machinery is quite simply this: consume good X until the extra pleasure from a little more is just equal to what the little more costs. It is The Rule of Rational Life once again.


1. Demand constitutes one side of a market. Supply and demand determine together the exchange value of commodities traded.

2. Neoclassical theory looks at the margins for an explanation of demand. Utility and its derivative, marginal utility, are its key concepts.

3. Marginal utility tells how the amount you buy depends on how much you have already bought. It leads directly to the demand curve, that is, to the way the amount demanded depends on the price.

4. But the amount demanded in the economist's model depends also on the constraints - the leashes - on the consumer of gasoline. Accordingly, the decision to buy is determined by
- the consumer's preferences and
- the consumer's constraints.

The constraints are:
- the price of the good,
- the consumer's income,
- the prices of substitute and complement goods,
- the consumer's wealth (assets minus liabilities), and
- the consumer's expectations about future income, wealth, and prices.

5. Inside these leashes, Maria and all other consumers wander as their tastes dictate.