Questions: Marginal Utility and the Law of Diminishing Marginal Utility

Question 1

A consumer eats slices of pizza and reports: slice 1 gives 10 utils of satisfaction, slice 2 gives 7 utils, slice 3 gives 4 utils. What is the consumer's total utility after eating all 3 slices?

• A. 4 utils — the marginal utility of the last (third) slice
• B. 10 utils — the highest satisfaction reported
• C. 21 utils — the sum of all marginal utilities (10 + 7 + 4)
• D. 7 utils — the average marginal utility across slices

Answer: (C)

Total utility is the cumulative satisfaction from all units consumed — you add up every marginal utility received: 10 + 7 + 4 = 21 utils. The fact that marginal utility is falling does not mean total utility is falling — it means total utility is rising more and more slowly. As long as each slice adds some positive satisfaction (MU > 0), total utility keeps increasing. Confusing marginal utility (the addition from one more unit) with total utility (the cumulative amount) is the central misconception in this topic.

Question 2

A student claims: 'After drinking 4 cups of coffee, my total satisfaction from coffee is decreasing because of diminishing marginal utility.' Based on the law of diminishing marginal utility, what is the correct assessment?

• A. The student is correct — total utility always decreases as consumption rises above some point
• B. The student is confusing the law — total utility decreases only if the marginal utility of the 4th cup is negative (it actually reduces overall satisfaction)
• C. The law predicts total utility decreases after any 4 units consumed
• D. Diminishing marginal utility only applies to food and drink, not beverages

Answer: (B)

Diminishing marginal utility means each additional cup adds less satisfaction than the one before — but as long as MU > 0, each cup still adds something positive, so total utility is still rising. Total utility only starts to fall when MU turns negative — when a unit of consumption actually causes net harm (anxiety from too much coffee, nausea from too much food). The student is misapplying the law by equating 'diminishing additions' with 'decreasing total.'

Question 3

The law of diminishing marginal utility states that the more you consume of a good, the less total satisfaction you have from consuming it.

• T. True
• F. False

Answer: False

The law applies to MARGINAL utility — the additional satisfaction from each successive unit — not to total utility. Total utility continues to rise as long as marginal utility is positive (i.e., each additional unit still adds some satisfaction). Total utility only falls when marginal utility becomes negative. Confusing the two is the most common error when learning this concept.

Question 4

The downward slope of an individual demand curve is a direct consequence of diminishing marginal utility: as a consumer acquires more units, their willingness to pay for each additional unit falls.

• T. True
• F. False

Answer: True

This is the key link between utility theory and the demand curve you already know. A rational consumer will pay for a unit only up to the satisfaction that unit provides. Since each successive unit yields less marginal utility, the consumer's marginal willingness to pay declines with each unit. The demand curve is essentially marginal utility expressed in dollar terms — the two concepts are the same insight at different levels of abstraction.

Question 5

Explain the difference between total utility and marginal utility. Why does total utility continue to rise even as marginal utility diminishes?

Model answer: Total utility is the cumulative satisfaction from all units consumed. Marginal utility is the additional satisfaction from consuming one more unit. As long as each new unit adds any positive amount (MU > 0), total utility keeps increasing — just more slowly. Total utility only falls when MU becomes negative. Diminishing MU means the additions are getting smaller, not that the total is shrinking.

An analogy: imagine filling a bucket with water. Each cup you add increases the water level (total utility rises), but each successive cup might fill the bucket a bit less efficiently (marginal utility diminishes). The bucket keeps filling as long as you keep adding water with positive effect. Only if the water somehow evaporated faster than you added it (negative MU) would the level drop. The total is the accumulation of all the marginals.