Question

1\. For each of the following situations, decide whether Al has diminishing marginal utility. Explain. a. The more economics classes Al takes, the more he enjoys the subject. And the more classes he takes, the easier each one gets, making him enjoy each additional class even more than the one before. b. Al likes loud music. In fact, according to him, "the louder, the better." Each time he turns the volume up a notch, he adds 5 utils to his total utility. c. Al enjoys watching reruns of the old sitcom Friends. He claims that these episodes are always funny, but he does admit that the more he sees an episode, the less funny it gets. d. Al loves toasted marshmallows. The more he eats, however, the fuller he gets and the less he enjoys each additional marshmallow. And there is a point at which he becomes satiated: beyond that point, more marshmallows actually make him feel worse rather than better.

Short answer

a. Al enjoys economics classes more as he takes more of them. b. Al gets a constant increase of 5 utils in total utility for every notch he turns up the volume in loud music. c. Al enjoys watching Friends reruns, but admits that the more he sees an episode, the less funny it gets. d. As Al consumes more toasted marshmallows, he gets fuller and enjoys each additional marshmallow less. Answer: Al experiences diminishing marginal utility in situations c and d.

Step-by-step solution

Situation a: Economics Classes

In this situation, Al enjoys economics classes more as he takes more of them. Furthermore, each additional class becomes easier, making him enjoy each additional class even more than the one before. This indicates that Al's marginal utility is increasing, not diminishing. Therefore, Al does not experience diminishing marginal utility in this situation.

Situation b: Loud Music

In this case, Al likes loud music and gets a constant increase of 5 utils in total utility for every notch he turns up the volume. As the increase in satisfaction remains constant (5 utils), the marginal utility neither increases nor decreases. Therefore, Al does not experience diminishing marginal utility in this case as well.

Situation c: Watching Friends Reruns

Here, Al enjoys watching Friends reruns, but admits that the more he sees an episode, the less funny it gets. This shows that, for each additional time he watches an episode, the satisfaction he gets from it decreases. This is a clear indication of diminishing marginal utility.

Situation d: Toasted Marshmallows

In this scenario, Al loves eating toasted marshmallows. However, as he consumes more, he gets fuller and enjoys each additional marshmallow less. Also, there comes a point where having more marshmallows makes him feel worse. This indicates that Al's marginal utility declines as he consumes more marshmallows, which is an example of diminishing marginal utility. In conclusion, Al experiences diminishing marginal utility in situations c and d.

Key concepts

Marginal Utility

Marginal utility is a fundamental concept in economics that deals with the change in overall satisfaction or utility that a consumer derives from consuming an additional unit of a good or service. It's how much extra happiness or usefulness you get from having one more of something.

In simpler terms, when you think about eating a delicious slice of cake, the pleasure from the first slice is usually high. If you have a second slice, you still enjoy it, but perhaps not as much as the first. The extra satisfaction from the second slice is the marginal utility. If each slice of cake gives you less and less satisfaction, that's an example of diminishing marginal utility.

• Marginal utility helps understand consumer choices and behaviors.
• It illustrates the value or satisfaction derived from additional consumption.
• Understanding marginal utility can help businesses and policymakers make informed decisions.

Recognizing when marginal utility diminishes is important for efficiently allocating resources and managing consumption.

Utility Theory

Utility theory is a concept used by economists to explain how and why individuals make consumption choices. It suggests that people aim to maximize their utility, or satisfaction, from consuming goods and services.

Individuals evaluate options based on their preferences and choose the combination that provides them with the most satisfaction. Think of utility as a measure of happiness or benefit that you gain from using products or services.

• Utility is subjective and varies from person to person.
• It is often quantified in hypothetical units called util, representing satisfaction levels.
• Utility theory underlies several economic models and theories related to consumer behavior.

By understanding how utility varies with consumption, economists can predict consumer demand and market trends.
Utility theory not only helps explain why people buy more of a product when it’s cheaper but also why they might choose one product over another, based on the perceived utility of each.

Consumption Patterns

Consumption patterns are the trends and behaviors that individuals or groups follow when choosing goods or services to consume. These patterns can be influenced by several factors, such as income, culture, price changes, and personal preferences.

They reflect the demand side of the market and help in understanding how goods are used over time. With different consumption patterns, you can see how people's needs and wants change, which in turn influences pricing, demand, and production.

• Consumption patterns help businesses make strategic decisions regarding product supply.
• They can also influence advertising strategies to target specific consumer preferences.
• Economists study these patterns to understand economic growth and societal changes.

Understanding these patterns can signal shifts in the economy, such as when a community starts to consume more eco-friendly products, indicating a shift towards sustainability.
Therefore, consumption patterns are critical not only in an economic context but also socially, as they reveal underlying preferences and societal priorities.