Question

Explain why a rational consumer who had diminishing marginal utility for a good would not consume an additional unit when it generates negative marginal utility, even when that unit is free? Include an example in your explanation.

Answer 1

Answer:

The answer is: Negative marginal utility means that at some point you will be worst off if you keep consuming extra units of a product. That means that you will stop consuming that product to stop getting worse even if that product is given to you for free.

Explanation:

The law of diminishing marginal utility states that as someone consumes a product, the satisfaction that they get from the product wanes out as they consume more and more of that product. Eventually they wouldn´t get any more satisfaction from consuming that product, they may even get worse if they consume more of that product (negative marginal utility). At that point they will stop consuming it. They will either change to some other substitute product or not consume at all.  

A great example for this is an all you can eat buffet. A person eats until they are full. They may eat a lot, but eventually they will stop eating even if the extra food is "free" or already paid for.