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As consumers consume more units of a good their marginal utility will eventually fall - Leaving Cert Economics - Question 2(a) - 2010
Question 2(a)
As consumers consume more units of a good their marginal utility will eventually fall. (i) Explain the underlined term. (ii) Suggest one good a person may consume ... show full transcript
Worked Solution & Example Answer:As consumers consume more units of a good their marginal utility will eventually fall - Leaving Cert Economics - Question 2(a) - 2010
Step 1
Explain the underlined term.
Answer
Marginal utility is defined as the extra utility or satisfaction gained when you consume one extra unit of a good. It measures the additional benefit derived from consuming one more unit, which often diminishes as more units are consumed due to the law of diminishing marginal utility.
Step 2
Suggest one good a person may consume which may not result in a fall in their marginal utility. Explain your answer.
Answer
One good a person may consume that may not result in a fall in their marginal utility is cigarettes or alcohol.
Explanation: For addictive goods, the consumer may derive similar satisfaction from each additional unit consumed, as the additional dose may fulfill a specific craving or need. Thus, the marginal utility remains constant or may even increase, particularly when the person has a strong desire for the substance.
Step 3
Complete the following table in your answerbook. State at what point diminishing marginal utility sets in and explain your choice.
Answer
Number of units consumed | Total utility in units | Marginal utility in units
1 | 10 | 10
2 | 35 | 25
3 | 75 | 40
4 | 95 | 20
5 | 110 | 15
6 | 115 | 5
Diminishing marginal utility sets in after the 3rd unit is consumed or on the consumption of the 4th unit.
Explanation: After the 3rd unit, the marginal utility drops from 40 to 20 when the 4th unit is consumed, indicating a decrease in satisfaction received from each additional unit consumed.