Question

When marginal utility of the commodity declines demand for the commodity must be rising consequent upon fall in its price. Explain this with reference to consumer's equilibrium equation for a single commodity!

Answer 1

Dear student,
According to utility analysis a consumer attains equilibrium at the point where,
MU / Price = Marginal Utility of Money

When marginal utility falls then this suggests that the consumption of the good must be rising. This further suggests that there is a rise in the demand for commodity. This happens only when price of the commodity falls.