Question

As Keith Collins buys more and more of any good or service, his (LO3) a) total utility and marginal utility both decline b) total utility and marginal utility both rise c) total utility rises and marginal utility declines d) total utility declines and marginal utility rises

Short answer

c) total utility rises and marginal utility declines

Step-by-step solution

Understanding Total Utility and Marginal Utility

Total utility refers to the total satisfaction a consumer derives from consuming a certain quantity of a good or service. It measures the overall usefulness or happiness a consumer gets from all the units of a good or service consumed. Marginal utility, on the other hand, refers to the additional satisfaction a consumer derives from consuming one additional unit of a good or service. It measures the change in total utility resulting from the consumption of an extra unit of a good or service.

Analyzing Statement a)

Statement a) states that both the total utility and marginal utility decline as the consumer consumes more units of a good or service. This statement goes against the Law of Diminishing Marginal Utility, which states that as a person consumes more units of a good or service, the marginal utility decreases, while total utility keeps increasing but at a decreasing rate. Therefore, statement a) is incorrect.

Analyzing Statement b)

Statement b) states that both the total utility and marginal utility rise as the consumer consumes more units of a good or service. This statement is also incorrect because, as mentioned earlier, according to the Law of Diminishing Marginal Utility, marginal utility decreases with the increase in the consumption of a good or service, while the total utility increases but at a decreasing rate.

Analyzing Statement c)

Statement c) states that total utility rises and marginal utility declines as the consumer consumes more units of a good or service. This statement accurately reflects the Law of Diminishing Marginal Utility. As more units of a good or service are consumed, the marginal utility (satisfaction from additional units) decreases. However, the total utility still increases as more satisfaction is gained, but at a decreasing rate. Therefore, statement c) is correct.

Analyzing Statement d)

Statement d) states that total utility declines and marginal utility rises as the consumer consumes more units of a good or service. This statement does not reflect the relationship between total utility and marginal utility according to the Law of Diminishing Marginal Utility. As discussed earlier, as a person consumes more units of a good or service, total utility increases at a decreasing rate, and marginal utility decreases. Therefore, statement d) is incorrect.

Conclusion

According to the analysis of the given statements, the correct relationship between total utility and marginal utility as the consumption of a good or service increases is: c) total utility rises and marginal utility declines This relationship follows the Law of Diminishing Marginal Utility, which states that as more units of a good or service are consumed, marginal utility decreases, and total utility increases but at a decreasing rate.