The relationship between marginal utility and demand curve is an important concept in economics that helps to explain how consumers make decisions about what to purchase and at what price.
Marginal utility refers to the additional satisfaction or benefit that a consumer derives from consuming one additional unit of a good or service. As a consumer consumes more of a good or service, the marginal utility that they receive from each additional unit decreases. This phenomenon is known as the law of diminishing marginal utility.
The law of diminishing marginal utility can be illustrated through the example of a consumer who is thirsty and consumes a glass of water. The first glass of water will have a high marginal utility for the consumer, as it quenches their thirst and provides a large amount of satisfaction. However, if the consumer continues to drink additional glasses of water, the marginal utility from each additional glass will decrease. Eventually, the marginal utility from each additional glass of water may become so low that the consumer no longer derives any additional satisfaction from drinking it.
The relationship between marginal utility and demand curve can be explained by the concept of marginal cost. Marginal cost refers to the cost of producing one additional unit of a good or service. When the marginal cost of a good or service is greater than the marginal utility that a consumer derives from consuming it, they will not be willing to pay the price required to obtain it. On the other hand, if the marginal cost is less than the marginal utility, the consumer will be willing to pay the price to obtain the good or service.
The demand curve represents the relationship between the price of a good or service and the quantity of it that consumers are willing to purchase. The demand curve slopes downward, indicating that as the price of a good or service decreases, the quantity demanded by consumers increases. This is because as the price decreases, the marginal cost of obtaining the good or service decreases, which increases the marginal utility that the consumer derives from it.
In conclusion, the relationship between marginal utility and demand curve is an important concept in economics that helps to explain how consumers make decisions about what to purchase and at what price. As the price of a good or service decreases, the marginal cost of obtaining it decreases, which increases the marginal utility that the consumer derives from it and leads to an increase in the quantity demanded.
