Q. 8 A5.0( 1 Vote )

Show that demand

Answer :

The price and quantity demanded of a good are inversely related this means when the price increases the demand decreases and vice-a-versa. The inverse relationship between demand and price can be explained with help of single commodity equilibrium condition where marginal utility equals price.

The law of diminishing marginal utility states that if we keep on consuming more and more units of a commodity the utility derived from that commodity declines with every successive unit.

So, consumer buys goods only up to the point at which marginal utility is equal to price.

When the price falls then

Marginal Utility > price

This motivates or induces consumer to buy more of a good and that is why there is inverse relationship between price and demand.

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