![]() ![]() Unless the supply curve is higher than the demand curve at the zero quantity, then the curves will intersect somewhere. So, we have a downward sloping demand curve and an upward sloping supply curve. The price would not be below the marginal costs, because the firm would be losing money on production of the unit, and thus they would choose to not make the unit of the good in the first place. The price should not be higher than the marginal utility, because a rational individual would not give away more utility (in the form of money) than the utility he or she would get from consuming the good. ![]() For any given quantity of goods, these two curves define the limits of the price we expect to see for a good. Now we have defined these two relationships: the demand curve, which defines the relationship between the maximum amount that somebody will pay for a certain quantity of goods, which is defined by the marginal utility derived from consuming that good, and the supply curve, which defines the relationship between the minimum amount that a firm is willing to accept for a certain quantity of goods, derived from the notion of marginal cost and declining marginal returns to a factor. ![]()
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