The Law of Demand Versus Diminishing Marginal Utility
17 Pages Posted: 12 Jan 2004
Date Written: October 2003
Diminishing marginal utility is neither necessary nor sufficient for downward sloping demand, and it is not necessary for convex indifference curves. We illustrate these facts with two simple counter examples, using valid and easy to understand utility functions. The examples are accompanied with intuition, geometry, and basic mathematics of the utility functions, marginal utilities, marginal utility slopes, indifference curves, indifference curve slopes and curvatures, and ordinary demands and slopes. The wisdom of continuing to provide the conventional diminishing marginal utility rationale for downward sloping demand in principles textbooks is questioned.
JEL Classification: A22, D11
Suggested Citation: Suggested Citation