Answer to Question #273080 in Microeconomics for hgh

Question

Explain the Law of Diminishing Marginal Utility. How does it have an implication over the Law of Demand?

Answer 1

The law of diminishing marginal utility applies to business in that it is closely connected to the law of demand. That law states that as price decreases, consumption increases and that as price increases, consumption decreases. The law of diminishing marginal utility helps to explain the negative slope of the demand curve and the law of demand. If the satisfaction obtained from a good declines, then buyers are willing to pay a lower price, hence demand price is inversely related to quantity demanded, which is the law of demand.