Index
The Demand Curve 1
The Demand Curve 2
The Demand Curve 3
The Laws of Supply and Demand - 4
The Laws of Supply and Demand - 5
A ''Contraction'' of Demand - 6
''Ceteris Paribus'' - 7
An ''Expansion'' of Demand - 8
Marginal Utility - 9
Marginal Utility - 10
Marginal Utility - 11
Marginal Utility - 12
Consumer Surplus - 13
Consumer Surplus - 14
Price Discrimination - 15
An ''Expansion'' of Supply - 16
An ''Expansion'' of Supply - 17
Market Equilibrium - 18
Market Equilibrium - 19
Market Equilibrium - 20
Movements of the Demand Curve - 21
Movements of the Demand Curve - 22
Movements of the Demand Curve - 23
Inferior Goods - 24
Movements of the Demand Curve - 25
Movements of the Supply Curve - 26
Movements of the Supply Curve - 27
Movements of the Supply Curve - 28
The Income Effect - 29
The Substitution Effect - 30
The Substitution Effect - 31
The Substitution Effect - 32
The Substitution Effect - 33
Complements - 34
Complements - 35
Review: Factors Effecting Demand - 36
Review: Factors Effecting Demand - 37
The Goals of Firms - 38
The Goals of Firms - 39
To: Elasticity

Marginal Utility - 10

If the shop keeper said "You are such a good customer, this extra soft drink is now 50 cents less than the last one", you would probably buy it. However, since he or she does not reduce their sales price for each additional soft drink you buy, you will eventually stop consuming soft drinks.

In many countries, prices are not fixed, and people have to bargain. If you go shopping for clothes in Bali, and you see a shirt you like, you will probably be willing to pay a high price for it. To induce you to buy another shirt, the shop keeper will have to reduce his or her price on this additional item. To get you to buy another shirt, the price on this shirt will have to be lower still. This the ''law of diminishing marginal utility''.

At some point in your consumption, additional units of consumption result in smaller increases in utility. The marginal utility of successive units of consumption will always fall.

As a result, the demand curve for a good or service is downward sloping. Since the marginal utility of each additional item is less, the seller will have to reduce their price to induce you to buy it.