What is meant by diminishing marginal benefits? Are you likely to experience diminishing marginal benefits for goods that you like a lot? Are there exceptions to the general rule of diminishing marginal benefits? (Hint: think about batteries that you
would use in a flashlight that requires two batteries.) Explain your answer.
Diminishing marginal benefit from a good suggests that the willingness to pay for an additional unit declines as more is consumed. You are likely to experience diminishing marginal benefit even from goods that you like a lot, although you will probably consume more of those goods before diminishing marginal benefits sets in. The first ice cream is delicious. The second is still very tasty but not quite as good as the first. The third might make you sick to your stomach.
Yes, there could be exceptions to the rule of diminishing marginal returns. If a flashlight does not function without both batteries, you would experience increasing marginal benefits; the first battery is useless but the second makes the flashlight work.
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Recall the Application. The loans made to borrowers who have a limited ability to actually repay their mortgages are known as
A) no-fault loans. B) stimulus loans. C) bankruptcy loans. D) subprime loans.
A cartel is a group of firms
A) acting separately to limit output, lower price, and decrease economic profit. B) acting together to limit output, raise price, and increase economic profit. C) legally fixing prices. D) acting together to erect barriers to entry. E) that compete primarily with each other rather than the other firms in the market.
Freedom of entry and exit in monopolistic competition
A) means that firms' price and average total cost of producing are always equal. B) never allows firms to earn economic profits. C) leads to falling prices when new firms enter the market. D) forces firms to abandon product differentiation but only in the long run.
The wealthy nations of the world have
a. the largest populations. b. more supplies of natural resources. c. more supplies of capital. d. larger labor forces.