Question

If a service is free, you will consume more and more of it until (LO2) a) your marginal utility is zero b) your total utility is zero c) both your marginal utility and your total utility are zero d) neither your marginal utility nor your total utility is zero

Short answer

When a service is free, a consumer will consume more and more of it until their marginal utility is zero, meaning they gain no additional satisfaction from consuming an extra unit of the service. The correct answer is a) your marginal utility is zero.

Step-by-step solution

Understanding Marginal Utility and Total Utility Concepts

Marginal utility refers to the additional satisfaction that a consumer derives from consuming an extra unit of a good or service. Total utility, on the other hand, is the total satisfaction that a consumer derives from consuming a certain number of units of a good or service.

Analyze the Relationship between Marginal Utility, Total Utility, and Consumption

When the service is free, the consumer does not incur any cost for its consumption. Therefore, the consumer will consume it until they don't receive any additional satisfaction (i.e., marginal utility is zero). If the marginal utility becomes negative, the consumer will stop consuming the service because it leads to dissatisfaction. The total utility increases as long as the marginal utility is positive and stops increasing when the marginal utility becomes zero.

Examine the Given Options

Now let's examine the given options: a) your marginal utility is zero: This option suggests that the consumer will consume the service until no additional satisfaction is gained from consuming it. This is in line with our analysis. b) your total utility is zero: This option implies that consuming the service provides no satisfaction to the consumer, which contradicts our analysis. c) both your marginal utility and your total utility are zero: This option combines the first two options, suggesting that both marginal and total utilities are zero. However, as we determined earlier, only the marginal utility can be zero. d) neither your marginal utility nor your total utility is zero: This option contradicts our analysis as we found that the consumer will consume the service until the marginal utility is zero.

Select the Correct Answer

After analyzing the relationship between marginal utility, total utility, and consumption in the case of a free service, we can conclude that the correct answer is: a) your marginal utility is zero

Key concepts

Marginal Utility

At the very foundation of microeconomics is the concept of marginal utility, which is essentially the added satisfaction a consumer experiences when they use one additional unit of a good or service. Imagine you're indulging in your favorite chocolate; the pleasure you get from each additional piece is a perfect illustration of marginal utility. However, it's not constant - as you continue to consume, each piece brings a bit less joy than the previous one, until eventually, the thought of one more bite doesn't entice you at all. At this point, you've hit what economists call zero marginal utility.

This concept crucially impacts how consumers make their decisions. If something is free, for instance, you'll likely keep enjoying it until that extra unit doesn't enhance your satisfaction any further. After all, if it costs nothing, why not reap the benefits until they're no longer worthwhile?

Total Utility

Hand in hand with marginal utility comes the concept of total utility, which sums up the overall satisfaction or benefit a person gets from consuming a specific quantity of a good or service. It’s as if you were to document your happiness level after each chocolate from our previous example - the total of all those smiles and contented sighs would be your total utility.

Understanding total utility helps us gauge the full extent of consumer satisfaction. As you consume more, your total utility will keep climbing, but only as long as the marginal utility is positive. If eating more chocolates starts to make you feel ill, your satisfaction isn't going up anymore - that additional utility has plunged into the negatives, which thankfully is usually a signal we understand intuitively to stop consuming!

Consumer Satisfaction

Zooming out, consumer satisfaction is the broad term that covers the feeling of pleasure or contentment that arises from fulfilling a desire through the consumption of goods and services. It’s the overarching goal consumers unknowingly seek as they make their choices in the marketplace.

Consumer satisfaction relies on multiple factors such as personal preferences, quality and availability of products, and the context in which they are consumed. It's the endgame of total utility; where each additional utility, marginal or otherwise, contributes to this sense of fulfillment. Microeconomics seeks to understand and quantify this satisfaction, figuring out the intricacies of what brings consumers back for more, or what pushes them to seek alternatives.

Zero Marginal Utility

Then we come to the important threshold of zero marginal utility. This is the point where consuming more doesn't equate to feeling better; it's the 'thanks, but no thanks' moment. In our chocolate analogy, this is when you decide that the next piece won't do anything for you, and you might even leave it untouched.

It's essential to distinguish between zero and negative marginal utility. Zero means neutrality - there's no harm, but no gain either, in consuming more. However, dip into negative territory, and you're looking at actual dissatisfaction from consumption, which, as rational beings, we all strive to avoid. In the case of free services or products, we will generally keep on indulging until reaching this zero point, rather than the notably less appealing negative margin.