The campus bookstore
sells a campus mug
for $10
.
When you buy a second campus mug
,
however, its price is only $6
.
How does this relate to marginal utility?
Part 2
A.
As more is consumed, the marginal utility increases so consumers are willing to purchase more at higher prices.
B.
Increases in total utility from the consumption of campus mug
s
become larger as more is consumed so consumers will pay more.
C.
Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
D.
The cost of a campus mug
becomes cheaper as more are consumed.
C. Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
Part 2:
C. Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
The fact that the price of the second campus mug is lower than the first one suggests that as more units of the mug are consumed, the marginal utility decreases. This means that the additional satisfaction or usefulness gained from each additional unit decreases. Consumers are only willing to purchase more when the price is lower because the marginal utility is decreasing. Thus, option C is the correct answer.
The relationship between the price of the campus mug and its marginal utility can be explained using the concept of diminishing marginal utility.
Diminishing marginal utility refers to the idea that as you consume more units of a good or service, the additional satisfaction or utility you derive from each additional unit decreases. In other words, the more you have of something, the less value you place on each additional unit.
In the given scenario, the selling price of the second campus mug is lower ($6) compared to the price of the first campus mug ($10). This price difference can be attributed to the diminishing marginal utility.
The correct answer in this case would be option C: Since marginal utility falls as additional units of the good are consumed, consumers are only willing to purchase more as the price falls.
As consumers buy more campus mugs, the additional satisfaction or utility they derive from each additional mug decreases. Therefore, to motivate consumers to purchase more, the price of the second mug is reduced to $6. This lower price compensates for the diminishing satisfaction, making consumers more willing to buy another mug.
In summary, the relationship between the price of the campus mug and its marginal utility is that as marginal utility falls with each additional mug consumed, consumers are only willing to purchase more at a lower price. This is due to the concept of diminishing marginal utility.