The Consumer Demand Theory
By Lisa Allen
The law of diminishing marginal utility is known to be the fundamental principle of consumer demand theory. Get a complete elucidation about this theory.
The consumer demand theory is substantially converged on the extensive study and assessment of the utility brought forth from the satisfaction of needs and desires. The fundamental principle of consumer demand theory is known to be the law of diminishing marginal utility. This law tends to stream an elucidation for the law of demand as well as the negative slope of the demand curve.
Every consumer is inclined to have scarce income against a large number of goods and services available for consumption. We all can agree to the fact that if we talk about quantitative terms a person’s income may be large or timid but it can never be sufficient to satisfy the needs and demands. Every consumer needs to make a logical selection between what one wants to have and what not. However, a consumer’s choice of splashing out his/her restricted and limited income on different goods and services tend to be considered logical when he or she achieves maximum level of satisfaction.
In simple terms we can define demand theory as a principle or canon pertaining to the relationship between price of a commodity and consumer demand. Demand theory generally gives rise to the ground for the demand curve. This demand curve links the consumer’s wants and desires with the price of goods available. It simply means if there is a high availability of goods and services in the market the price tends to drop as well as the equilibrium price.
The Law of Diminishing Marginal Utility
The law of diminishing marginal utility holds a specific significance in the context of the consumer demand theory. It has its presence in our day to day tasks and decisions as well. The law of diminishing marginal utility illustrates that an extra unit of utility derived from the consumption of a particular good tends to decrease with an increase in the amount of quantity consumed.
In other sense it can be said that the amount of satisfaction derived from each additional unit of consumed good seems to be less satisfying as compared to the previous one. This particular law of marginal utility is quite vital for analyzing the market demand as well as the law demand. Saturation point can be understood as the specific point or level where the desire or wish to consume the exact good/product comes to zero. This law possesses particular assumptions as well as exceptions.
Therefore, it is quite evident that the theory of consumer demand appropriately elucidates the economic fundamentals as well as the principles on the basis of effective allocation of the consumer’s scarce and limited income in such a way that it streams maximum level of satisfaction. The consumer demand theory is generally aimed towards an in-depth apprehension of market demand as well as the law of demand. It streams a transparent inception into the human behavior.Author Bio
Lisa Allen, an assistant writer at EssayCorp, is an MBA degree holder from the St. George University with years of experience in the academic field. The company where I'm working provides various assignment writing services to high school and college students.