Economics Marginal Utility Questions Long
Marginal utility refers to the additional satisfaction or benefit that a consumer derives from consuming one additional unit of a good or service. It is important to understand that marginal utility diminishes as consumption increases. This concept plays a significant role in determining the demand curve.
The law of diminishing marginal utility states that as a consumer consumes more and more units of a good, the additional satisfaction or utility derived from each additional unit decreases. In other words, the more of a good a consumer has, the less value they place on each additional unit.
This diminishing marginal utility directly affects the demand curve. As the consumer's marginal utility decreases with each additional unit consumed, they become less willing to pay a higher price for that good. This leads to a downward-sloping demand curve.
To illustrate this, let's consider an example. Suppose a consumer is willing to pay $10 for the first unit of a good, which provides them with a high level of satisfaction. However, as they consume more units, the marginal utility decreases, and they are only willing to pay $8 for the second unit, $6 for the third unit, and so on. This decreasing willingness to pay is reflected in the demand curve, which slopes downward from left to right.
The concept of marginal utility also helps explain the law of demand, which states that as the price of a good increases, the quantity demanded decreases. As the price increases, the consumer's willingness to pay for each additional unit decreases even further, leading to a decrease in the quantity demanded.
In summary, marginal utility affects the demand curve by showing how the consumer's willingness to pay for each additional unit of a good decreases as consumption increases. This leads to a downward-sloping demand curve, reflecting the diminishing marginal utility and explaining the law of demand.