Which law holds its significance in theory of demand?
Answer & explanation
Correct answer: option 1
The significance of the diminishing marginal utility of a good for the theory of demand is that the quantity demanded of a good rises as the price falls and vice versa. As, a person consumes a commodity, his marginal utility derived from every successive consumption decreases due to law of DMU. Thus, he is willing to pay less for every successive commodity. This is the reason why demand curve slopes downward.