According to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
Correct answer
Explanation
The correct answer is B, diminish. Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Marginal utility is the extra satisfaction from one more unit. The first glass of water for a thirsty person is very valuable, the second less so, and by the fifth it may add almost nothing or even become unpleasant. The law is associated with Hermann Gossen and was set out clearly by Alfred Marshall. It explains why the demand curve slopes downward: a buyer will pay less for each additional unit. Total utility keeps rising while marginal utility is positive and is at its peak when marginal utility is zero.
A is wrong because marginal utility does not rise with more consumption. C is wrong because a constant marginal utility would contradict the law itself. D is wrong because the law describes a steady fall, not a fall followed by a rise.
Exam tip: Total utility is maximum when marginal utility is zero; the law also explains the downward-sloping demand curve.
Practice Questions
View allConsider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
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- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
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UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
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The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
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- A.Currency + Reserves with the RBI
- B.Net GDR
- C.Net Foreign Direct Investment
- D.Foreign Portfolio Investment
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Hot money is foreign capital that flows in quickly to earn short-term returns and can leave just as quickly, and in India this describes portfolio investment in shares and bonds.
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