As the consumption of a product increases, utility A. increases at a decreasing rate, so the marginal utility curve is negatively sloped. B. increases at a increasing rate, so the marginal utility curve is positively sloped. C. decreases at a decreasing rate, so the marginal utility curve is negatively sloped. D. decreases at a increasing rate, so the marginal utility curve is positively sloped.

Question

Social Studies

Romeo Acevedo

3 June, 18:34

As the consumption of a product increases, utility A. increases at a decreasing rate, so the marginal utility curve is negatively sloped. B. increases at a increasing rate, so the marginal utility curve is positively sloped. C. decreases at a decreasing rate, so the marginal utility curve is negatively sloped. D. decreases at a increasing rate, so the marginal utility curve is positively sloped.

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Valentino Avery · Answer 1

A. increases at a decreasing rate, so the marginal utility curve is negatively sloped.

Explanation:

The total utility of a good grows when larger quantities are consumed, but its marginal utility increase is decreasing, that is, as the consumption of a product increases, the utility increases at a decreasing rate, so the curve marginal utility is negatively inclined.

This can be explained by the water and diamond paradox which illustrates the importance of the marginal utility concept. Why is the most needed water so cheap, and the superfluous diamond so expensive? It turns out that water has great total utility, but low marginal utility (it is abundant), while diamond, being scarce *, has great marginal utility.