Question

People keep spending additional units of a particular resource on a want until their marginal benefit is _ their marginal cost.

a) Decreasing
b) Increasing
c) Equal to
d) Not affected by

Answer 1

People spend on additional units of a resource until the marginal benefit equals the marginal cost, in line with rational consumer behavior and the principle of marginal analysis.

Step-by-step explanation:

People will continue allocating resources toward fulfilling a want until the marginal benefit is equal to the marginal cost. This concept is grounded in the principles of marginal analysis which guides optimal decision-making on the margin, to decide how much more or less to consume. As demonstrated in the scenario with Alphonso and bus tickets, rational consumers will stop purchasing additional units of a product when the marginal utility (additional satisfaction) is balanced by the opportunity cost (the value of what is given up to get it). According to the law of diminishing returns, as we add more resources, the extra satisfaction obtained from consuming additional units tends to decrease.