Skip to content

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 holds true?

The law of diminishing marginal utility assumes the consumer's tastes and preferences remain unchanged during consumption, along with identical units and continuous consumption. If tastes changed, the utility of later units could rise or fall for reasons unrelated to quantity, so the law could not be stated reliably.

  1. ASuccessive units consumed are of different quality and size
  2. BThe consumer's taste and preferences remain unchanged during consumptionCorrect
  3. CConsumption is spread over several days with long gaps between units
  4. DThe consumer can switch to a substitute good after each unit

Explanation

The law operates under the 'other things equal' condition. Units must be identical, consumption continuous, and tastes, income and prices unchanged. Changing tastes would alter the utility schedule, so the law would not hold. The other options describe conditions that break the law.

Did you get it right without looking?

One question tells you little. A timed set on Utility, Wealth, Production shows your real accuracy, how long you take and where you lose marks.

Practise Utility, Wealth, ProductionFree diagnostic mock

More Utility, Wealth, Production questions