DERIVATION OF DEMAND AND CURVE FROM UTILITY THEORY
Diminishing marginal utility is the basis of the demand curve.
The normal demand curve slopes downwards from left to right, showing that at a lower price, more of a commodity will be demanded and also at a higher price, less of i will be demanded.
The explanation for phenomenon lies in the law of diminishing marginal utility. According to this law, successive equal increments of a commodity will yield less and less satisfaction to the consumer.
At the beginning, when the consumer has very little of the commodity, his marginal utility is very his Therefore, he is ready to pay a high price obtain it. Thus, the higher the price, the lower the quantity demanded.
However, as the consumer gets more and more of a commodity his marginal utility begins to fall and at this point the price must be reduced. Thus, the lower t price, the higher the quantity demanded.Related Posts