(Just starting to learn microecon, so please feel free to chirp corrections)
How diminishing marginal utility helps create supply/demand curves: think about the uses you could find for a pillow. Your first few pillows are used to help you fall asleep. After that, maybe some for your couch, and then a few spares to keep in storage. You prioritize pillow allocation in this manner; the value of the latter uses is much less than the value of having a place to rest your head.
How many pillows do you buy at a given price point? Well, if you buy any, you’ll buy some for your bed at least. Then, when pillows get cheap enough, you’ll start buying them for your couch. At what price, exactly? Depends on the person, and their utility function. So as the price goes up or down, it does or doesn’t become worth it to buy pillows for different levels of the “use hierarchy”.
Then part of what the supply/demand curve is reflecting is the distribution of pillow use valuations in the market. It tracks when different uses become worth it for different agents, and how significant these shifts are!
(Just starting to learn microecon, so please feel free to chirp corrections)
How diminishing marginal utility helps create supply/demand curves: think about the uses you could find for a pillow. Your first few pillows are used to help you fall asleep. After that, maybe some for your couch, and then a few spares to keep in storage. You prioritize pillow allocation in this manner; the value of the latter uses is much less than the value of having a place to rest your head.
How many pillows do you buy at a given price point? Well, if you buy any, you’ll buy some for your bed at least. Then, when pillows get cheap enough, you’ll start buying them for your couch. At what price, exactly? Depends on the person, and their utility function. So as the price goes up or down, it does or doesn’t become worth it to buy pillows for different levels of the “use hierarchy”.
Then part of what the supply/demand curve is reflecting is the distribution of pillow use valuations in the market. It tracks when different uses become worth it for different agents, and how significant these shifts are!