Question

Derive the law of demand from the single commodity equilibrium condition

Answer 1

Law of demand can be derived from the concept of consumer equilibrium in case of single commodity as follows. Now, according to the law of diminishing marginal utility, the marginal utility derived from every additional unit of a good consumed tends to decline at the same price.

Answer 2

Deriving the law of demand from a single commodity equilibrium condition would be more dependent on the price at which the consumer can derive maximum level of satisfaction. The consumer will be at equilibrium level when he purchases the quantity of commodity that gives him maximum satisfaction

Explanation:

• Law of demand can be derived from the concept of consumer equilibrium in regards to a single commodity at an equilibrium condition. The equilibrium level of the commodity is got when the end user is able to get maximum satisfaction from consumption of the commodity that is equal to the price paid for the commodity. In the case of a single commodity the "law of diminishing marginal utility" is effective.
• For attaining the level of equilibrium the consumer will increase the level of consumption of good and in the process the level of satisfaction will go down. This leads to "diminishing marginal utility", when the price is decreased the demand for the product increases. When the price increases the demand for the product decreases. Therefore the end user demand will increase when there is a fall in the price of the commodity. His equilibrium level would be attained at the level where his satisfaction level and the commodities marginal utility would be equivalent to the price

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