b) Law of diminishing marginal utility

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4 Terms

1
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  • define marginal utility

  • the additional utility gained from the consumption of an additional unit of a good or service

2
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  • state how to calculate total utility

  • the sum of all marginal utilities

3
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  • define the law of diminishing marginal utility

  • as additional units are consumed

  • → the utility gained from the next unit will be lower than the utility gained from the previous unit

<ul><li><p>as additional units are consumed</p></li><li><p>→ the utility gained from the next unit will be lower than the utility gained from the previous unit</p></li></ul><p></p>
4
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  • explain how the law of diminishing marginal utility shows why demand curves slope downwards

  • as additional units are purchased → price increases + marginal utility decreases

  • consumers will be less willing and able to purchase additional units

  • so lower prices increase the quantity demanded