The Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a commodity:
Show answer & explanation
Correct answer: A
Explanation
Answer: Marginal utility derived from each additional unit decreases.
Explanation: The Law of Diminishing Marginal Utility states that as a consumer consumes more units of a commodity, the additional satisfaction (marginal utility) from each successive unit keeps decreasing.
The first unit gives high satisfaction
The second gives less satisfaction
This continues until marginal utility may even become zero or negative
This happens due to saturation of want—the more you consume, the less additional satisfaction you get.
Additional Key Points:
It is a fundamental concept in consumer behavior theory
Helps explain: demand curve (downward sloping) and price determination
Related concept: Total Utility increases at a decreasing rate, even when marginal utility falls
Potential Exam-Oriented Questions & Answers:
Question: What is utility?
Answer: Satisfaction derived from consumption
Question: What happens to total utility when marginal utility decreases but is positive?
Answer: Total utility increases at a decreasing rate