Chapter 7: Problem 7

As increasing amounts of a product are consumed, marginal utility will decline. (LO2)

Short Answer

Expert verified

As increasing amounts of a product are consumed, marginal utility will decline, according to the Law of Diminishing Marginal Utility. Marginal utility is the additional satisfaction a consumer receives from consuming one more unit of a good or service. As consumption increases, consumers experience diminishing levels of satisfaction with each additional unit consumed. For example, if a person is eating pizza, the first slice might provide 10 utility points, but the second slice might only provide 8 utility points. The marginal utility curve will generally slope downward, illustrating the declining satisfaction from consuming additional units of a product. This concept is crucial in understanding consumer behavior and optimizing decision-making in economic situations.

Step by step solution

Understand the Concept of Marginal Utility

Marginal utility is the additional satisfaction a consumer receives from consuming one more unit of a good or service. In other words, it measures the change in total utility (satisfaction) when consumption increases by one unit.

Understand the Law of Diminishing Marginal Utility

The Law of Diminishing Marginal Utility states that as more units of a good or service are consumed, the additional satisfaction gained from consuming each additional unit will decrease. This happens because consumers experience diminishing levels of satisfaction as they consume more of a product. It can also be due to the fact that the consumer's need for that particular good becomes more satisfied with each unit they consume.

Use an Example to Illustrate the Declining Marginal Utility

Consider a person eating slices of pizza. The first slice provides a significant amount of satisfaction (let's say 10 utility points). However, as the person continues to eat more slices, the satisfaction from each additional slice will likely decrease. For example, the utility gained from the second slice may be 8 points, from the third slice 6 points, and so on. This illustrates the concept of declining marginal utility.

Graph the Relationship between Consumption and Marginal Utility

To visualize the relationship between consumption and marginal utility, plot the consumption (number of units consumed) on the x-axis and the marginal utility on the y-axis. The marginal utility curve will generally slope downward, indicating that as more units are consumed, the additional satisfaction gained from each unit decreases.

Summarize the Concept

In conclusion, as the consumption of a good or service increases, the marginal utility (additional satisfaction) will typically decline. This is due to the Law of Diminishing Marginal Utility which states that the additional satisfaction from consuming each additional unit of a good or service decreases as more units are consumed. It is important to understand this concept as it helps explain consumer behavior and optimize decision-making in various economic scenarios.