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

Which of the following is an assumption on which the law of diminishing marginal utility is based?

The law assumes that the units consumed are identical and consumed in continuous succession, along with constant tastes, income and other conditions. Changing tastes, rising income or falling prices would break the ceteris paribus condition on which the law rests.

  1. AThe units consumed are identical and consumed in continuous successionCorrect
  2. BThe consumer's income rises with each unit consumed
  3. CThe consumer's tastes change after each unit
  4. DThe price of the good falls with each unit consumed

Explanation

The law assumes homogeneous units, continuous consumption without long gaps, constant tastes, and unchanged income and other conditions. Changing tastes or rising income would violate the 'other things equal' condition, so those options are wrong.

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