Of Hon Don't fo 2 Microeconomics LESSON 1 _ ACTIVITY 11 Why Is a Demand Curve Downward Sloping? To most people, the law of demand is obvious: Consumers buy more at a lower price and less at a higher price. Economics goes beyond describing the combined demand of all consumers in a market. To explain why a demand curve is downward sloping, or negatively sloped, economists focus on the demand curve of a single consumer. The total utility of a quantity of goods and services to a consumer can be represented by the maxi- mum amount of money he or she is willing to give in exchange for them. The marginal utility of a good or service to a consumer (measured in money terms) is the maximum amount of money he or she is willing to pay for one more unit of the good or service. With these definitions, we can now state a simple idea about consumer tastes: The more of a good a consumer has, the less will be the margin- al utility of an additional unit. Part A Figure 11.1 presents data on Dolores' evaluation of different quantities of polo shirts and different quantities of steak. 1. Use the data to compute the marginal utility of each polo shirt and each steak. The numbers in the figure represent the amount of dollars Dolores is willing to pay for the polo shirts and steaks. * Figure 11.1 Marginal Utility of Polo Shirts and Steaks Number of Total Marginal Number of Total Marginal Polo Shirts Utility Utility Steaks Utility Utility 0 0 0 1 60 60 1 20 20 2 100 40 2 36 - 16 3 130 3 51 4 150 4 65 165 78 5 5 6 175 6 90 2. Using Figure 11.2 (on the next page), plot Dolores' total utility and marginal utility for polo shirts and steaks. Each graph has two points to get you started. Adapted from Craig Swan, Study Guide for Baumol and Blinder Economics: Principles and Policy, 6th ed. (Fort Worth: Harcourt Brace & Co., 1994), pp. 100 to 102. 59 Advanced Placement Economics Microeconomics: Student Activities @ National Council on Economic Education, New York, N.Y