The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.
True
False
The correct answer and explanation is :
False
The consumer demand curve is downsloping due to the law of diminishing marginal utility and income and substitution effects, not because marginal utility is constant when price declines.
Explanation:
- Diminishing Marginal Utility: The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction or utility they derive from each subsequent unit decreases. This concept is central to understanding why the demand curve slopes downward. When the price of a good decreases, consumers are more willing to buy additional units of the good, since the lower price allows them to derive greater utility per unit spent, and the marginal utility per dollar spent becomes higher.
- Income Effect: The income effect occurs when a price reduction increases the real purchasing power of a consumer’s income. With lower prices, consumers can afford to buy more of a good, which leads to an increase in the quantity demanded.
- Substitution Effect: The substitution effect occurs when the price of a good decreases, making it more attractive relative to other goods. Consumers may substitute this now-cheaper good for alternatives, further increasing the quantity demanded.
Thus, the downward slope of the demand curve is not caused by constant marginal utility when price declines. Instead, it is driven by the combined effects of diminishing marginal utility (which makes consumers willing to buy more as the price decreases), the income effect (which increases purchasing power), and the substitution effect (which makes the good more attractive compared to alternatives).
In summary, the demand curve slopes downward because price reductions lead to an increase in quantity demanded, driven by changes in utility, income, and substitution behavior, not because marginal utility remains constant as price changes.