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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

Priya is very thirsty and drinks glasses of lemonade one after another at a stall in Jaipur. According to the law of diminishing marginal utility, which of the following is most likely to happen as she drinks more glasses in quick succession?

The satisfaction from each additional glass falls. As Priya consumes more lemonade in quick succession, marginal utility declines, while total utility keeps rising as long as marginal utility remains positive. Total utility does not fall from the first glass onward.

  1. AThe satisfaction from each additional glass fallsCorrect
  2. BThe total utility falls from the first glass onward
  3. CThe satisfaction from each additional glass rises
  4. DThe price of lemonade falls automatically

Explanation

The law says that the extra satisfaction from each additional unit consumed declines as consumption rises, assuming other things stay the same. Total utility still rises while marginal utility is positive, so the option saying total utility falls from the first glass is wrong.

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