How does marginal utility of money affect the demand for goods and services?

The marginal utility of money refers to the additional satisfaction or value that an individual derives from acquiring an additional unit of money. It affects the demand for goods and services in the following ways:

1. Diminishing marginal utility of money: As individuals acquire more money, the marginal utility of each additional unit of money decreases. This means that the satisfaction gained from acquiring additional money decreases over time. As a result, individuals are less willing to spend their money on goods and services, leading to a decrease in demand.

2. Income effect: When the marginal utility of money decreases, individuals may choose to save or invest their money rather than spend it on goods and services. This can lead to a decrease in the demand for goods and services.

3. Substitution effect: As the marginal utility of money decreases, individuals may choose to substitute goods and services with other alternatives that provide higher marginal utility. For example, if the marginal utility of money decreases, individuals may choose to spend their money on experiences or luxury goods rather than basic necessities. This can lead to a shift in demand towards different types of goods and services.

Overall, the marginal utility of money affects the demand for goods and services by influencing individuals' willingness to spend, save, and substitute different types of goods and services based on their perceived value and satisfaction.