Given the utility-optimizing rule and the presence of diminishing marginal utility for a good
A) the demand curve for the good will be vertical.
B) there will not be a well-defined demand curve.
C) there will not be a substitution effect.
D) the demand curve for the good will be negatively sloped.

Question

Quizplus · Accepted Answer

The utility-optimizing rule states that consumers will continue consuming goods until the marginal utility per dollar spent is equal across all goods. If there is diminishing marginal utility for a good, this means that as a consumer consumes more of the good, the additional satisfaction they get from each additional unit consumed decreases (i.e. the marginal utility decreases). This leads to a negatively sloped demand curve, as consumers will only be willing to pay a higher price for the good if they are receiving a higher marginal utility from that additional unit consumed.

Given the Utility-Optimizing Rule and the Presence of Diminishing Marginal