Unit 5 Discussion Diminishing Marginal Utility
The concept of diminishing marginal utility is based on the observation that people have finite needs and desires. When someone consumes the first unit of a good, it typically satisfies a specific need or desire, providing a high level of utility or satisfaction. However, as they continue to consume more units, the incremental satisfaction gained from each additional unit diminishes.
Once the marginal utility (mu) has been assigned to each unit of consumption, the marginal utility per dollar must be calculated. For example, if the rating for the first item is 90mu and the price is $3.00, the mu/$ is 90mu/$3.00 = 30mu/$, which means that each dollar is purchasing 30 units of utility for that level of consumption. However, if the second item consumed has a rating of 75mu, the mu/$ would be 75mu/$3.00 = 25mu/$. This shows that each dollar is now only purchasing 25 units of utility for each dollar spent at that level of consumption.
Questions for Initial Response IN A MINIMUM OF 400 WORDS
- 1. Identify a good or service that would provide continued satisfaction with additional units of consumption.
- A. Assign a price that this good or service might cost per unit. (Each unit will be the same price.)
- B. List the number of units you would consume and assign marginal utility scores, based upon a scale of 1 to 100, to each level of consumption. Include at least 4 units of consumption.
- C. Calculate the marginal utility per dollar you will receive with each unit consumed.
- D. Calculate the total utility acquired by all the units consumed.
- 2. Provide an example of a good or service from which you are likely to receive zero marginal utility with additional consumption of it. For example, a second identical newspaper will offer no additional marginal utility for a consumer because there is no new information in it that is not in the first copy.
- 3. Provide an example of a good or service in which the marginal utility diminishes very slowly with additional use. For example, people who need to take a life-saving medicine every day would not receive diminished marginal utility for taking the medication. Rather, this would receive the maximum utility possible with every dosage.