Question

To encourage customers to buy more and more of a product the products price must generally fall. This is because:

a) Customers marginal utility will increase if price falls
b) Lower prices shift the demand curve to the right.
c) As customers buy more, their marginal utility increases.
d) As customers buy more their marginal utility decreases.

Answer 1

d). As customers buy more, their marginal utility decreases.

We know that a rational consumer consumes at the margin, and will only pay the value that equals his utility at the margin. When consumer consumes one more unit of a commodity, the utility he derives from consuming that commodity is lesser than the utility he derived from the previous commodity that he consumed. Thus, in order to make a consumer buy more of a commodity, a seller has to lower the prices of that particular commodity.