Question

Which situation is consistent with the law of diminishing marginal utility?

1) Consuming more of a good leads to a decrease in the satisfaction derived from each additional unit
2) Consuming more of a good leads to an increase in the satisfaction derived from each additional unit
3) Consuming more of a good has no effect on the satisfaction derived from each additional unit
4) Consuming more of a good leads to a constant level of satisfaction derived from each additional unit

Answer 1

The situation that is consistent with the law of diminishing marginal utility is when consuming more of a good leads to decreased satisfaction from each additional unit, such as José valuing his first T-shirt at 22 utils and the fourth one at only 18 utils.

Step-by-step explanation:

The situation consistent with the law of diminishing marginal utility is when consuming more of a good leads to a decrease in the satisfaction derived from each additional unit. This concept is fundamental in understanding consumer behavior and plays a significant role in the field of economics, specifically when analyzing how individuals make consumption decisions. The law of diminishing marginal utility suggests that as a consumer receives more of a good or service, the additional (marginal) utility or satisfaction that they obtain from each subsequent unit decreases.

An example would be José, who values his first T-shirt at 22 utils because it's his favorite, but the fourth T-shirt, used only when necessary, provides only 18 utils. This diminishing additional utility showcases why we rarely make all-or-nothing choices in life and consumption.