Quiz 6: Consumers, Producers and the Efficiency of Markets


Law of Diminishing Marginal Utility Some restaurants offer "all you can eat" meals. The marginal utility derived from each additional plate of food will start diminishing once the consumer becomes full. The marginal utility will continue to decrease until it reaches zero; and once the consumer becomes full, his/her marginal utility becomes negative.In order to make profit, restaurants should not allow consumers to share food with other consumers and also should not allow consumers to tak e away food to their home.

Law of diminishing marginal utility a.Your tastes determine the utility you derive from consuming a particular good. b.Marginal utility is the change in total utility resulting from a one-unit change in the consumption of a good. c.As long as marginal utility is positive, total utility is increasing. d.The law of diminishing marginal utility states that as an individual consumes more of a good during a given time period, other things constant, total utility increases but at decreasing rate.

Marginal Utility Marginal utility is a change in total utility from an additional unit of consumption made by a consumer. Initially, when marginal utility increases, total utility increases at an increasing rate and after a certain point, it will start to decline; and then, total utility will increase at a decreasing rate.Once marginal utility becomes zero, the total utility would be at a maximum. After this level, marginal utility will become negative and total utility will start to decline.Total utility can be positive as long as the negative marginal utility is not large enough to completely offset the positive total utility.

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