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    Demand Analysis Learning Objective:: Lecture-10

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    RohitPatial
    This document discusses the derivation of demand curves through the laws of diminishing marginal utility and equi-marginal utility. It explains that demand curves can be derived using either law. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases. This results in consumers demanding more only when price decreases. The law of equi-marginal utility suggests that consumers seek to equalize marginal utility per rupee spent across goods, resulting in adjustments to demand as relative prices change to maintain equilibrium. Examples are provided to illustrate how demand schedules and curves can be constructed based on the principles of these two laws.

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    Demand Analysis Learning Objective:: Lecture-10

    Uploaded by

    RohitPatial
    14 views4 pages
    This document discusses the derivation of demand curves through the laws of diminishing marginal utility and equi-marginal utility. It explains that demand curves can be derived using either law. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases. This results in consumers demanding more only when price decreases. The law of equi-marginal utility suggests that consumers seek to equalize marginal utility per rupee spent across goods, resulting in adjustments to demand as relative prices change to maintain equilibrium. Examples are provided to illustrate how demand schedules and curves can be constructed based on the principles of these two laws.

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    This document discusses the derivation of demand curves through the laws of diminishing marginal utility and equi-marginal utility. It explains that demand curves can be derived using either law. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases. This results in consumers demanding more only when price decreases. The law of equi-marginal utility suggests that consumers seek to equalize marginal utility per rupee spent across goods, resulting in adjustments to demand as relative prices change to maintain equilibrium. Examples are provided to illustrate how demand schedules and curves can be constructed based on the principles of these two laws.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    14 views4 pages

    Demand Analysis Learning Objective:: Lecture-10

    Uploaded by

    RohitPatial
    This document discusses the derivation of demand curves through the laws of diminishing marginal utility and equi-marginal utility. It explains that demand curves can be derived using either law. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility of each additional unit decreases. This results in consumers demanding more only when price decreases. The law of equi-marginal utility suggests that consumers seek to equalize marginal utility per rupee spent across goods, resulting in adjustments to demand as relative prices change to maintain equilibrium. Examples are provided to illustrate how demand schedules and curves can be constructed based on the principles of these two laws.

    Copyright:

    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    Lecture-10

    Demand Analysis
    Learning Objective: Derivation of Demand Curve through the Law of
    Diminishing Marginal Utility and Equi marginal Utility
    The law of demand or the demand curve can be derived in two ways:

    firstly, with the aid of law of diminishing marginal utility, and

    secondly, with the help of law of equi-marginal utility

    Derivation of Demand curve through Law of Diminishing Marginal Utility


    The price that a consumer pays for a commodity is equal to the marginal utility.
    According to the Law of Diminishing Marginal Utility, as a consumer goes on
    purchasing more and more units of a commodity, its marginal utility goes on
    diminishing
    As such consumer will buy more units of a commodity only when its price goes
    down. When marginal utility is expressed in money, in that case positive part of
    marginal utility curve is demand curve
    In the words of Lipsey, "When the consumption of all but one product is held
    constant, the marginal utility schedule for the variable product is the product's
    demand curve".
    When marginal utility is shown on OY-axis then the curve obtained will be called
    marginal utility curve. In case, price is shown on Y-axis then the curve obtained
    will be called demand curve, as is indicated in Fig. below.

    Derivation of Demand Curve through the Law Equi marginal Utility:


    Demand curve can also be drawn with the help of Law of Equi- Marginal Utility.
    Suppose A consumer buys two goods say X and Y with MUx and MUy having Px
    and Py prices. Then he will be in equilibrium
    MUx
    Px

    MUy
    Py

    = MU of the last rupee spent on each good

    This can further be explained with the help of table given below.
    Quantity
    1
    2
    3
    4
    5

    MUx
    12
    10
    8
    6
    4

    MUy
    10
    8
    6
    4
    2

    Suppose the price of good X and Y be Re. one and consumer has a budget of Rs 5
    to spend on these two goods. It can be seen from the table that he will spend Rs3
    on X and Rs 2 on Y. In other words, at price of Re. 1 he will buy 3 units of X and
    2 units of Y. The last unit of money so spent on these two yields him equal
    marginal utility ( 8 utils).
    The term equi-marginal utility does not refer to the equalities of marginal
    utilities (MUx or MUy) of different goods, but marginal utility of the last rupee
    spent on each good, which is calculated by dividing MU of a good by its price.
    Suppose the price of X rises to Rs. 2.00 per unit. While the income of the
    consumer and the price of Y (Re. 1 per unit.) remains unchanged. The consumer

    will so adjust the demand for both the commodities that the marginal utility per
    rupee of each commodity becomes equal.
    MUX (12)/ 2 = MU6/1
    Thus at Rs. 2.00 per unit the consumer buys only one unit of X whereas at Re. 1.00 he
    was buying 3 unit of X. To be in equilibrium, the consumer will buy 1 unit of X and 3 of
    Y, because then alone the marginal utility per rupee of X and Y becomes equal (6 utils).
    On the basis of the above data regarding change in the prices of X and consequent
    changes in its demand the following Demand Schedule and Demand Curve for X is
    drawn.
    Price
    1
    2

    Units demanded of X
    3
    1

    Questions
    1When price of a commodity increases, its quantity demanded
    a) Remains the same
    b) Falls
    c) Increases
    d) None of the above
    2. Demand curve can be drawn with the help of
    a) Law of Diminishing Marginal Utility
    b) Law of Equi-marginal utility
    c) Both a and b
    d) None of the above
    3Demand for fertilizers is

    a) Direct demand
    b) Derived demand
    c) Joint demand
    d) None of the above
    4With the change in price of a commodity, if there is no change in the quantity
    demanded, then the demand for the commodity is
    a) Elastic
    b) Inelastic
    c) Relatively elastic
    d) Relatively inelastic
    5. The schedule that shows the quantities of a commodity demanded at different prices at
    a certain time is
    a) Supply schedule
    b) Demand schedule
    c) Cost schedule
    d) Production schedule
    Answers
    1 b)
    2 c)
    3 b)
    4 b)
    5 b)

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