Question

The principle of diminishing marginal utility states that the additional utility a consumer receives from an additional unit of a good or service decreases as consumption of it increases. Which scenario demonstrates decreasing marginal utility? a. It is 120 degrees outside and you just walk into your air conditioned apartment after getting groceries. You are thankful for the air conditioning and wonder how you could live without it, but after cooling down, you do not notice the air conditioner anymore. b. Beth likes pillows since they are really comfortable to sleep on. However, she finds that if there are more than three pillows on her bed, they become too tall to sleep on. c. James is at Buffet Palace and is notoriously known to be able to eat a lot. However, he puts less and less food on his plates after round one until he can no longer eat any more. d. All of these scenarios demonstrate decreasing marginal utility.

Answer 1

The correct answer is D) All of these scenarios demonstrate decreasing marginal utility.

The scenario that demonstrates decreasing marginal utility is the three mentioned above.

The principle of diminishing marginal utility states that the additional utility a consumer receives from an additional unit of a good or service decreases as consumption of it increases. So that is the case of example number one when you are grateful that you have your air conditioning while you are outside on the streets under the sunshine, but when you get back home, after cooling down, you feel like normal, and do not appreciate that so much or maybe you start questioning if the air conditioning bill and power bill are too much.

The same in the case of Beth and the second or third pillow, she doesn't enjoy them too much and thinks that the third one was unnecessary. Or James at the buffet. It is all you can eat but his dish is half empty.