CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production
Which of the following is a recognised limitation or assumption of the law of diminishing marginal utility?
The law assumes units of the commodity are identical and consumed in continuous succession, with tastes, income and prices unchanged. If units differ or consumption is spaced out, marginal utility may not fall as the law predicts.
- AUnits consumed must be identical and consumed in continuous successionCorrect
- BConsumer income must rise with each unit
- CThe price of the good must fall with each unit
- DTastes must change after each unit
Explanation
The law assumes homogeneous units of the good, consumed without long gaps, with tastes and income unchanged. Changing tastes or income would violate 'other things remaining the same'. So only the first option is a genuine assumption.
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