Which of the following statements is true?
A)Marginal utility theory predicts that an increase in a consumer's income increases consumption of all goods.
B)It is possible to derive the law of demand - that a higher price decreases the quantity demanded - using marginal utility theory.
C)Marginal utility theory makes no prediction about a consumer's responses to hikes in the prices of the goods and services he or she consumes.
D)Marginal utility theory predicts that all goods are normal goods and that all goods are substitutes for each other.
E)None of the above.

Question

Quizplus · Accepted Answer

Marginal utility theory predicts that as the quantity consumed of a good increases, the marginal utility derived from each additional unit decreases. This implies that a higher price for a good will decrease the quantity demanded, since consumers will only be willing to pay the higher price if the marginal utility they derive from the good is still greater than the price. Therefore, the law of demand can be derived from marginal utility theory. Choices A, C, and D are incorrect as they misrepresent or overgeneralize the predictions of marginal utility theory.

Which of the Following Statements Is True