Question

A. Define utility as an economist would.

B. State and explain the Law of Diminishing Marginal Utility.

C. How is the Law of Diminishing Marginal Utility reflected in the demand curve?

Answer 1

Utility can be described as the level of satisfaction an individual consumer receives when a particular good or services consumed. In other words when a desire is satisfied, the consumer is set to experience a utility.

The law of diminishing marginal utility suggests that when more and more units of a commodity are consumed, the additional utility or the marginal utility received by the consumer goes on declining. This principle is essential for understanding the fact that total utility ultimately declines for a large number of units and is not always positive.

Demand curve relates the price and quantity of a good in an inverse relationship so that as the price reduces the quantity demanded increases. We can see that in the demand curve, the willingness to pay for a particular unit of a good goes on declining as a consumer purchases more and more units of that good. This falling willingness to pay is a perhaps a reflection of the decreased additional utility consumer experiences when shecontinuous to purchase and consume more and more units.