Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? A) the rationing function of pricesC) the substitution effectB) diminishing marginal utilityD) the income effect

Question

Joyce Conrad

Business

6 November, 08:30

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? A) the rationing function of pricesC) the substitution effectB) diminishing marginal utilityD) the income effect

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Catherine · Answer 1

B) diminishing marginal utility

Explanation:

The law of Diminishing marginal utility states that utility falls as consumption increases.

The law of demand states that the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.

Because of diminishing marginal utility, consumption can be encouraged by reducing price.

As utility falls, consumers would be unwilling to buy more goods at the same price, therefore it would be reasonable to reduce price to encourage consumption.