Explain the law of diminishing marginal utility. How does it relate to the shape of the demand curve?
What will be an ideal response?
The law of diminishing marginal utility states that each additional unit of a good consumed provides less and less additional satisfaction. Therefore, the amount that a person will be willing to pay for a product will fall as more of the product is consumed. This is one reason why demand curves slope downward.
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The figure above shows the supply curve for soda. The market price is $1.00 per soda. The producer surplus from the 20,000th soda is
A) $0.00. B) $0.50. C) $1.00. D) more than $1.00. E) None of the above answers is correct.
A country opens up to trade and becomes an exporter of wheat. In the wheat market, consumer surplus will ________, producer surplus will ________, and total surplus will ________
A) decrease; increase; increase B) increase; decrease; increase C) decrease; increase; decrease D) remain unchanged; increase; increase
As the interest rate increases, the opportunity cost of holding money __________ and individuals choose to hold __________ money
A) rises; more B) falls; less C) rises; less D) falls; more
Given the basic rule of thumb for the relationship among inflation, productivity and nominal wage increases, if wages rise by 1 percent and productivity increases 2 percent, one would predict inflation to be:
A. 3 percent. B. 1.5 percent. C. 0 percent. D. ?1 percent.