Explain the derivation of demand curve in the case of single commodity
Answers
In the case of a single commodity, the derivation of the demand curve is done with the help of the concept of diminishing marginal utility.
Marginal utility is the satisfaction a person receives from consuming one unit of commodity. Similarly diminishing marginal utility means that the first unit of consumption of a good yields more utility than the second and as more units are purchased the less utility is derived from them.
As long as the marginal utility of a commodity is greater than its price (MUx > Px), the consumer demand will be high till its marginal utility is equal to its price MUx = Px
As more units of commodity X are purchased, its marginal utility diminishes. So at diminishing price, the quantity demanded of good X increases. The rational supports the notion of down slopping demand curve that when price falls, other things remaining the same, the quantity demanded of a good increases and vice verse.