Derivation of The Demand Curve:

The following assumptions are made in the derivation of the demand curve via the utility approach:

i. Cardinal Utility: That the satisfaction derivable from a good or service is measurable in some imaginary numerical terms called utils.

ii. Diminishing Marginal Utility: The satisfaction from a unit increase in the rate of consumption of a good or service decreases as more and more units of it are consumed.

iii. Constant Marginal Utility of Money: The marginal utility of money remains constant as income increases or decreases.

iv. Consumer Rationality: The average consumer will always maintain the utility maximization position in his spending pattern.