Test Your Understanding: Law of Diminishing Marginal Utility Questions

📚 Quick Study Guide

• 🧐 The Law of Diminishing Marginal Utility states that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
• 📉 Marginal Utility (MU) is the change in total utility resulting from consuming one additional unit of a good or service.
• ➕ Total Utility (TU) is the overall satisfaction a consumer gets from the consumption of goods and services.
• 🔢 Formula: $MU = \frac{\Delta TU}{\Delta Q}$, where $\Delta TU$ is the change in total utility and $\Delta Q$ is the change in quantity.
• 🍕 Example: The first slice of pizza gives you great satisfaction, but each additional slice provides less and less satisfaction.
• 💡 Key Idea: At some point, consuming more of a good may even lead to negative marginal utility (disutility).
• 📊 Graphical Representation: The marginal utility curve slopes downward, illustrating the diminishing returns.

Practice Quiz

1. What does the Law of Diminishing Marginal Utility primarily describe?
   1. A) The increase in satisfaction from consuming more of a good.
   2. B) The decrease in satisfaction from consuming more of a good.
   3. C) The constant satisfaction from consuming more of a good.
   4. D) The relationship between price and quantity demanded.
2. Marginal Utility is best defined as:
   1. A) The total satisfaction from consuming a good.
   2. B) The change in total satisfaction from consuming one more unit of a good.
   3. C) The price of a good.
   4. D) The quantity of a good consumed.
3. If consuming one apple gives you 10 utils and consuming two apples gives you 18 utils, what is the marginal utility of the second apple?
   1. A) 8 utils
   2. B) 10 utils
   3. C) 18 utils
   4. D) 28 utils
4. When does negative marginal utility occur?
   1. A) When total utility is increasing.
   2. B) When consuming more of a good leads to dissatisfaction.
   3. C) When the price of a good increases.
   4. D) Never; marginal utility is always positive.
5. Which of the following is an example of the Law of Diminishing Marginal Utility?
   1. A) A person enjoys the first cup of coffee immensely but finds each subsequent cup less satisfying.
   2. B) A person enjoys each new car they purchase just as much as the previous one.
   3. C) A person's satisfaction increases linearly with each unit consumed.
   4. D) A person's satisfaction decreases at a constant rate with each unit consumed.
6. What happens to the marginal utility curve as consumption increases, according to the law?
   1. A) It slopes upward.
   2. B) It remains constant.
   3. C) It slopes downward.
   4. D) It becomes vertical.
7. Total Utility is calculated by:
   1. A) Summing the marginal utilities of each unit consumed.
   2. B) Dividing marginal utility by the quantity consumed.
   3. C) Multiplying marginal utility by the price.
   4. D) Subtracting marginal utility from the quantity consumed.