Demonstrate the relationship between law of diminishing marginal utility and law of demand with suitable diagrams.
Answers
Price in LAW OF DEMAND is nothing but another way of representation of MARGINAL UTILITY.
If we substitute marginal utility by price, the relationship between the marginal utility and demand ( consumption) can be well explained by substituting marginal utility by price.
For example, as you consume more and more Ice Creams the last Ice Cream always gives you lesser satisfaction of consumption of that Ice Cream, when compared to the satisfaction derived from the LAST BUT ONE Ice Cream!
10th Ice Cream gives lesser satisfaction than 9th Ice Cream. But remember CETERIS PARIBAS operates here also, ALL OTHER CONDITIONS remain constant! It means that all Ice Creams are same in quality, taste, size, weight, price etc. no Ice-cream is inferior to any other Ice Cream.
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Economics 101: What Is Diminishing Marginal Utility? Learn About the Law of Diminishing Marginal Utility in Business With Examples
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Last updated: Nov 8, 2020 • 3 min read
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How much would you pay for a cell phone? The answer probably depends on your current phone status. If you don’t presently have a phone, you’d likely pay upwards of a thousand dollars for a phone with fast internet connectivity, a great camera, and long battery life. Now let’s say you bought that phone. How much would you pay to acquire a second phone to go along with it? Probably far less than you would have paid for the first one. And you’d pay less still to acquire a third phone. The fact that you’d pay less for each successive phone helps illustrate the law of diminishing marginal utility.
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