Question

Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.

Answer 1

Joe should decrease his consumption of crackers and his marginal utility from crackers will  increase and also  increase his consumption of cheese and his marginal utility from cheese will decrease .

What happens to marginal utility when consumption decreases?

According to the Law of Diminishing Marginal Utility, the additional utility derived from increasing consumption declines with each additional increase in consumption level.

What happens to marginal utility when consumption increases?

According to the law of declining marginal utility, when consumption rises, the marginal utility gained from each extra unit decreases, all other things being equal.

Why does marginal utility decrease as more is consumed?

• Consumers will only purchase more of a specific good if the price drops since they get less satisfaction from consuming more units of that good.
• Thus, the law of diminishing marginal value contributes to the understanding of the law of demand.

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