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Chapter 20: Q. a- For Critical Thinking (page 443)

What fact ultimately constrains consumption of any item said to be available in "unlimited" amounts at a fixed price? (Hint: Recall the law of diminishing marginal utility.)

Short Answer

Expert verified

The phenomenon of diminishing marginal utility describes how each additional unit of gain leads to an ever-smaller rise in subjective value.

Step by step solution

01

Introduction of consumption increase.

The marginal utility of each additional unit decreases as consumption increases, according to the law of diminishing marginal utility.

02

Reasons for consumption of any item said to be available in "unlimited".

In economics, utility refers to the total satisfaction gained from consuming a good or service. In economic principles based on objective decision, individual satisfaction maximising is generally presumed.

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Most popular questions from this chapter

Explain why an optimal choice of how much to consume entails equalizing the marginal utility per dollar spent across all items.

Draw a marginal utility curve corresponding to the total utility curve depicted in Problem 20-9.

From the data in Problem 20-3, if the price of a cheeseburger is \(2, the price of a bag of french fries is \)1, and you have $1 to spend (and you spend all of it), what is the utility-maximizing combination of cheeseburgers and french fries?

What does Michel's experience imply about the idea of computing levels of utility derived from consumption and contrasting these utilities across individuals? Explain.

The table below represents Sue's preferences for bottled water and soft drinks, the combination of which yields the same level of utility.

Calculate Sue's marginal rate of substitution of soft drinks for bottled water at each rate of consumption of water (or soft drinks). Relate the marginal rate of substitution to marginal utility.
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