CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply
Which of the following is the usual explanation for the downward slope of a demand curve, based on the idea that each additional unit of a commodity gives less satisfaction than the previous one?
The Law of Diminishing Marginal Utility explains the downward slope of the demand curve. Because each extra unit gives less satisfaction than the one before, a consumer is willing to buy additional units only at lower prices, so quantity demanded rises as price falls.
- ALaw of Diminishing Marginal UtilityCorrect
- BLaw of Variable Proportions
- CLaw of Returns to Scale
- DLaw of Supply
Explanation
As a consumer takes more units, the marginal utility of each extra unit falls, so the consumer will pay only a lower price for additional units. This gives a downward-sloping demand curve. The Law of Variable Proportions relates to production, not consumer demand.
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