Question

Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. Is this necessarily good? Group of answer choices Yes, because everyone is satisfied.

Answer 1

Question:

Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. Is this necessarily good?

A) Yes, because everyone is satisfied.

B) No, because there might be some cases where the resources used to produce peanut butter could have been better used to produce more of other products.

C) Yes, because the law of diminishing marginal utility indicates that in order to get the greatest amount of satisfaction from the use of resources, people should consume as much of every good as they can.

D) none of the above  

Answer:

The Correct Answer is  B)              

Explanation:

The question above speaks to the concept of Marginal Utility and how Marginal Analysis is used in Public Policy Formulation for Optimal Decision Making.

To get the explanation, you'd need to understand the basic terms. They are given below:

Utility is defined in economics as benefit enjoyed by consuming a product or service;

This means that Marginal utility of a good or service is the change in the utility derived due to an increase in the consumption of that good or service.

Marginal Analysis  is the process of breaking down a decision into a series of ‘yes or no’ decisions. More formally, it is an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity.

In other words, does the added utility enjoyed or benefits derived from producing and consuming additional amounts of a good or service justify the additional costs spent in creating such good?  

That's exactly the question above.

One of the principles of economics is the Law of Diminishing Marginal Utility. It simply states that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts.

In other words, as one consumes more and more of a commodity, they derive less and less satisfaction from it.

So the question above seeks to clarify whether it is wise for the government to continue to supply peanut butter until marginal utility is Zero.

The rule and the answer therefore is this:

• When total benefits rise more than total costs, then the action is logical.

• When total costs rise more than total benefits, then the action is illogical.

The peanut butter may have been supplied free of charge, but they were not produced at zero costs.

Therefore to continue to supply after benefits have hit rock bottom would be counter productive.

The government may continue to supply for as long as there is some benefits being derived from the consumption of peanut butter and the cost of production is less than the benefits enjoyed.

Cheers!