<ol>
<li><p>Yes, it does. The &quot;marginal benefit&quot;, measured in monetary units, is just the WTP (willingness-to-pay) for the next unit of the good. This WTP will decrease only slightly from unit to unit, if your only alternative is to purchase a very similar good instead.</p>
</li>
<li><p>Yes. Higher income means higher WTP and therefore higher marginal benefit, so the demand curve is shifted upwards.</p>
</li>
<li><p>Forget about the &quot;law of diminishing marginal utility&quot;. In consumer theory, utility is ordinal, and marginal utility (the derivative of the utility function w.r.t. the quantity of a good) has no meaningful interpretation. (Only ratios of marginal utilities of different goods have that.) The slope of the demand curve is determined by the shape of the indifference curves (given prices and income) which is determined by the marginal rate of substitution between the goods.</p>
</li>
</ol>

CC BY-SA 4.0
2024-02-20T14:34:47.087Z
2024-02-20T14:34:47.087Z
VARulle
<p>I understand that the demand curve can be viewed as a marginal benefit curve in that, for a given quantity, the price needed for that quantity to be demanded will be equal to the marginal benefit of consumption at that quantity.</p>
<p>However, there are some ideas that are intuitive for me when thinking about a demand curve which I can't translate to thinking about marginal benefit curves.</p>
<ol>
<li><p>Price elasticity. For a demand curve, it's intuitive to see I think that if you have many close substitutes for a good, then changes in price will result in relatively large changes in the quantity demanded, leading to a shallow curve. But how does this translate to marginal benefit? Does having substitutes mean the marginal benefit of each additional unit declines more slowly?</p>
</li>
<li><p>Some shifters of demand curves don't seem to obviously translate for me. For example increased income for a normal good shifts the demand curve outwards. Does this also mean that the marginal benefit of consuming at each quantity is increased as incomes increase? Why is this? Or if the price of a substitute decreases, how does this decrease the marginal benefit at each quantity?</p>
</li>
<li><p>I understand the law of diminishing marginal utility explains the MB curve's slope, and that the income and substitution effects explain the slope of a demand curve. Is there a relationship between the law of diminishing marginal utility and the income and substitution effects? Why should different laws underlie the reasons for the slope of these two curves that are equivalent?</p>
</li>
</ol>

<utility><demand>
Questions about demand curve as marginal benefit curve
firstnamelastname45341
# Questions about demand curve as marginal benefit curve

(Asked by: username_0 on 2024-02-19)

I understand that the demand curve can be viewed as a marginal benefit curve in that, for a given quantity, the price needed for that quantity to be demanded will be equal to the marginal benefit of consumption at that quantity.

However, there are some ideas that are intuitive for me when thinking about a demand curve which I can't translate to thinking about marginal benefit curves.

1. Price elasticity. For a demand curve, it's intuitive to see I think that if you have many close substitutes for a good, then changes in price will result in relatively large changes in the quantity demanded, leading to a shallow curve. But how does this translate to marginal benefit? Does having substitutes mean the marginal benefit of each additional unit declines more slowly?
2. Some shifters of demand curves don't seem to obviously translate for me. For example increased income for a normal good shifts the demand curve outwards. Does this also mean that the marginal benefit of consuming at each quantity is increased as incomes increase? Why is this? Or if the price of a substitute decreases, how does this decrease the marginal benefit at each quantity?
3. I understand the law of diminishing marginal utility explains the MB curve's slope, and that the income and substitution effects explain the slope of a demand curve. Is there a relationship between the law of diminishing marginal utility and the income and substitution effects? Why should different laws underlie the reasons for the slope of these two curves that are equivalent?

**Tags:** utility, demand

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## 1 answers

### Answer by username_1 on 2024-02-20. Score: 1

1. Yes, it does. The "marginal benefit", measured in monetary units, is just the WTP (willingness-to-pay) for the next unit of the good. This WTP will decrease only slightly from unit to unit, if your only alternative is to purchase a very similar good instead.
2. Yes. Higher income means higher WTP and therefore higher marginal benefit, so the demand curve is shifted upwards.
3. Forget about the "law of diminishing marginal utility". In consumer theory, utility is ordinal, and marginal utility (the derivative of the utility function w.r.t. the quantity of a good) has no meaningful interpretation. (Only ratios of marginal utilities of different goods have that.) The slope of the demand curve is determined by the shape of the indifference curves (given prices and income) which is determined by the marginal rate of substitution between the goods.


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