A downward-sloping demand curve illustrates the law of diminishing marginal utility, which states that as consumption increases, the additional satisfaction derived from each subsequent unit decreases.

The law of diminishing marginal utility is a key principle in economics. It posits that as an individual consumes more of a specific product, while keeping the consumption of other products constant, the marginal utility—i.e., the additional satisfaction—gained from each extra unit consumed diminishes. This principle is graphically represented by a downward-sloping demand curve.

To clarify this concept, let’s consider a practical example. Imagine you are extremely thirsty on a hot day and decide to buy a bottle of water. The first sip provides a high level of satisfaction, or utility. However, as you continue to drink, each additional sip yields less satisfaction than the previous one. By the time you finish the bottle, you may not even desire another one, as the incremental satisfaction from consuming more water has significantly decreased. This scenario exemplifies the law of diminishing marginal utility in action.

In a graphical representation, the downward-sloping demand curve captures this relationship. The x-axis represents the quantity of a good or service consumed, while the y-axis indicates the price that consumers are willing and able to pay. As the quantity consumed increases, the price consumers are willing to pay tends to decrease, reflecting the diminishing additional satisfaction associated with greater consumption.

This relationship between price and quantity demanded is fundamental to the law of demand, which asserts that, all else being equal, an increase in the price of a product leads to a decrease in the quantity demanded. Conversely, a decrease in the price results in an increase in the quantity demanded. This occurs because when prices fall, more consumers can afford the product, and the additional satisfaction they derive from consuming it outweighs the cost. On the other hand, as prices rise, fewer consumers can afford the product, and the additional satisfaction does not justify the higher cost.

In summary, the downward-sloping demand curve serves as a visual representation of the law of diminishing marginal utility, illustrating how additional satisfaction decreases as consumption increases.