Question

The amount of added utility that a consumer gains from the consumption of one more unit of a good is called a. incremental utility. b. total utility. c. diminishing utility. d. marginal utility.

Short answer

The correct answer is (d) marginal utility, as it refers to the additional satisfaction a consumer gains from consuming one extra unit of a good or service.

Step-by-step solution

Explain incremental utility

Incremental utility refers to the additional utility a consumer gets from consuming a slightly larger amount of a good or service. However, this term is not commonly used in the context of this question.

Explain total utility

Total utility is the overall satisfaction a consumer gains from consuming all units of a good or service. It is the cumulative utility derived from the consumption of each unit.

Explain diminishing utility

Diminishing utility, also known as the law of diminishing marginal utility, states that as a consumer consumes more units of a good or service, the additional (marginal) utility derived from each subsequent unit decreases.

Explain marginal utility

Marginal utility is the additional satisfaction or utility a consumer gains from consuming one extra unit of a good or service. It refers to the change in total utility due to the consumption of an additional unit of a good.

Choose the correct answer

Based on the explanations above, the correct answer to this question is: d. marginal utility. The amount of added utility that a consumer gains from the consumption of one more unit of a good is called marginal utility.

Key concepts

Incremental Utility

Imagine you're savoring a chocolate bar, and with each extra piece you consume, the pleasure you experience increases. This additional pleasure from consuming slightly more of the chocolate bar illustrates what we term as incremental utility. Although not a commonly used term, it is akin to the concept of marginal utility, which specifically refers to the satisfaction gained from each additional unit of consumption. It's like finding extra joy each time you decide to have 'just one more' piece. The key to grasping this concept is to think about how each small increase in what you consume adds to your overall satisfaction.

Total Utility

Now, let’s compile all the individual joys from each piece of the chocolate bar you've had so far. The sum of all these little increments of satisfaction is what economists call total utility.

Imagine you have a big bag filled with chocolate pieces. As you indulge in each piece, you feel good, but it's not just about one piece—it's about the entire bag and the cumulative happiness it brings. Total utility is the aggregate of all the joys, or utilities, that all the pieces of chocolate provide. Simply put, it's the overall satisfaction you get from consuming all units of a good or service.

Law of Diminishing Marginal Utility

The law of diminishing marginal utility is akin to the experience of starting to feel less excitement with each additional chocolate piece you eat after having too many. Each extra piece brings less pleasure than the one before.

This principle explains a fundamental human experience: as we consume more and more of a good, the satisfaction gained from each new unit diminishes. Initially, when we consume something delightful, the marginal utility is high, but as our hunger is sated or our craving satisfied, each additional unit of consumption yields less and less utility. It's an important concept because it helps businesses and economists understand consumer behavior and satisfaction levels.

Consumer Satisfaction

Ultimately, what do these utilities amount to? They collectively shape consumer satisfaction. Think of it as the fulfillment of a craving or the sense of contentment after enjoying a good meal.
Consumer satisfaction is the end goal that all the concepts of utility work towards. It measures how happy you are with the goods and services you consume. The greater the satisfaction, the higher the utility derived from the product. Economists are deeply interested in this because it helps predict consumer choices and market demand. After all, satisfied consumers are likely to make repeat purchases, which is nothing but sweet news for businesses!