After reading this chapter, students should be able to:

• Distinguish between the two main effects of a price change and understand why demand curves generally slope downward.
• Explain how to use demand curves to measure changes in consumer welfare.
• Explain the purpose of a cost-of-living index and define the Laspeyres index.
• Use cost-of-living indexes to measure changes in consumer welfare and explain why those measures may be biased.
• Understand the trade-off between consumption and leisure and explain how the wage rate affects labor supply.