The inverse relationship between quantity demanded and price of a good or service can be explained, in part, by
A) a shift in the demand curve.
B) diminishing marginal utility only.
C) diminishing marginal utility and the rule of equal marginal utilities per dollar.
D) the real income effect.

Question

Quizplus · Accepted Answer

The inverse relationship between quantity demanded and price of a good or service can be explained by both diminishing marginal utility and the rule of equal marginal utilities per dollar, which suggests that as the price of a good or service increases, consumers will only continue to purchase it if they perceive that the marginal utility they receive from the good is higher than the marginal utility they would receive from spending that same dollar on another good or service. As the price continues to increase, the marginal utility derived from the good or service will eventually decrease, leading to a decrease in quantity demanded.

The Inverse Relationship Between Quantity Demanded and Price of a Good