Normal Goods and Consumer's Demand Curve
Explain what is meant by a normal good and comment on the link between total utility, marginal utility and a consumer’s demand curve for that good.
Consumer Theory and Demand Analysis
[CIE A level November 2019]
Step ➊ : Define normal goods, total utility and marginal utility in the introduction.
It has been shown that total utility and marginal utility can be used to derive a consumer demand curve for a normal good. A normal good is a good that has a positive relationship between income and demand. This means that following a rise in consumer income, there will be a rise in the demand for normal goods and vice versa. Examples of normal goods include clothing, food or household appliances. Total utility is the overall satisfaction that is derived from the consumption of all units of a good over a given time period. Marginal utility is the benefit gained from consuming one additional unit of a product or service. To demonstrate how marginal utility can be used to derive an individual demand curve for a normal good, it is important to understand the law of diminishing marginal utility and the equi-marginal principle.
Step ➋ : Explain the law of diminishing marginal utility
The law of diminishing marginal utility states that there will be a fall in marginal utility as consumption increases. Let’s take the example of a normal good such as milkshake. If a person buys a milkshake he will get a lot of satisfaction from consuming it, especially in hot weather. However, if he consumes a second one, he will likely to get less satisfaction than from the first milkshake. A third milkshake will yield even less satisfaction. There may be a point where marginal utility is negative as consumption increases. The person may get dissatisfaction from consuming a forth milkshake.
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