Isabel experiences diminishing marginal utility when
Select one:
a. price of each additional hat she purchases falls when she gets volume discounts.
b. the price of hats increases overtime.
c. the value to her of each additional hat she purchases start falling.
d. the value of the hats she purchased start to fall as they wear out over time.
The Correct Answer and Explanation is :
The correct answer is:
c. the value to her of each additional hat she purchases starts falling.
Explanation:
Diminishing marginal utility is an economic concept that refers to the decrease in the additional satisfaction or benefit that a person derives from consuming one more unit of a good or service as they consume more of it. In other words, as a person continues to acquire or consume more of a good, the value or utility they get from each additional unit tends to decrease.
In the context of Isabel buying hats, marginal utility refers to the satisfaction she gains from each additional hat purchased. Initially, when she buys her first or second hat, the utility might be quite high because she might need them or enjoy them. However, as she buys more hats, the utility from each new hat decreases because she already has a sufficient number, and additional hats become less important or enjoyable.
This is a classic example of diminishing marginal utility. The satisfaction she gains from each successive purchase drops. So, the correct answer is c, because it directly addresses the concept of diminishing marginal utility—each additional hat brings less value to Isabel.
Why the other options are incorrect:
- a. the price of each additional hat she purchases falls when she gets volume discounts: While volume discounts may make purchasing additional hats more financially attractive, they do not directly relate to diminishing marginal utility, which concerns the decrease in satisfaction or value derived from additional units consumed.
- b. the price of hats increases over time: Price increases affect the cost of purchasing goods but do not necessarily relate to the concept of diminishing marginal utility, which is about the decreasing value of consumption, not price.
- d. the value of the hats she purchased starts to fall as they wear out over time: This refers to depreciation or wear and tear, which is not the same as diminishing marginal utility. Diminishing marginal utility refers to the decreased satisfaction from additional units consumed, not the decrease in value due to wear.
In summary, diminishing marginal utility highlights that the more of something you have, the less valuable each additional unit becomes in terms of satisfaction, which is why option c is the correct choice.