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Lesson 4, Topic 3
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# Derivation of Demand Curve from the Marginal Utility Curve

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Marginal utility theory can be used to derive the demand curve of a household. The normal demand curve slopes downward from left to right showing that consumers are prepared to buy more at a lower price than a higher price. The explanation to this can be found in the law of diminishing marginal utility. The law shows that as additional units of a product are consumed; additional satisfaction (marginal utility) tends to fall.

When a consumer does not have a commodity or has very little of it, marginal utility is usually high and the consumer is prepared to pay high price to obtain it. As he consumes more of it, the marginal utility falls and he is not prepared to pay as much as the earlier units for the consumer to have more of the commodity whose marginal utility has fallen, the price must be reduced. Thus when the prices are high, lower quantities will be purchased and vice versa. This is shown in the table below.

The above figure can be used to plot the demand curve.

Evaluation Questions

I. State the law of diminishing marginal utility

2. State the utility maximization

3. Differentiate between marginal cost and marginal utility.

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