Final answer:
The law of diminishing marginal utility suggests the satisfaction from additional consumption decreases. Total utility can rise while marginal utility diminishes.
Step-by-step explanation:
The law of diminishing marginal utility posits that as a person consumes more units of a good, the additional satisfaction from each new unit decreases.
So, if Jeremy examines his total utility from different amounts of phone minutes and round trips, the point of maximum utility is where the last unit of each good provides the same level of marginal utility for the cost
If the price of a product declines, purchases may increase because it becomes more affordable, the opportunity cost of buying the product is reduced, and assuming income remains constant, it effectively increases the consumer's purchasing power.
Individual utility is determined by the consumer based on their personal preferences and the satisfaction they derive from consuming goods.
Graphically, the budget constraint of a college student receiving less money from their parents would show a shift inward, indicating they can afford less of all normal goods.
However, total utility may still rise with additional consumption of a good even as marginal utility diminishes, because the additional satisfaction, while smaller, is still positive.
Examples of public goods include street lighting and national defense. These goods are non-excludable, meaning people cannot be easily prevented from using them, and non-rival, indicating that one person's use does not diminish another's.
The free-rider problem occurs when individuals cannot be excluded from benefiting from a good, leading to potential under-provision of that good by the market, hence government often provides public goods to ensure their availability.