Question

The law of diminishing marginal utility:

a.usually prevents consumers from allocating all their resources on one particular good or service.
b.causes prices to move toward equilibrium.
c.causes profit margins to decline in the long run.
d.balances utility gains between different consumers
e.all of the above.

Answer 1

The law of diminishing marginal utility states that as we consume more of a good or service, the additional utility we receive from each unit tends to diminish.

Step-by-step explanation:

The law of diminishing marginal utility is an economic concept that states as we consume more of a good or service, the additional utility we receive from each unit tends to diminish. This means that the satisfaction or benefit we get from each additional unit decreases. As a result, consumers are less likely to allocate all of their resources on one particular good or service because the marginal utility they receive from each additional unit will eventually decrease.

For example, let's say you love eating ice cream. The first scoop gives you great pleasure, the second scoop is still enjoyable but not as much as the first, and by the fifth scoop, you may start feeling somewhat sick from consuming too much. This represents the law of diminishing marginal utility in action as the satisfaction you receive from each additional scoop diminishes.

In summary, the law of diminishing marginal utility prevents consumers from allocating all their resources on one particular good or service because the marginal utility they receive from each additional unit tends to decrease.