Question

Explain one of your consumption experience that illustrates the concepts of total utility and marginal utility. In addition, discuss the mechanism of the law of diminishing marginal utility in this experience and the impact of the related assumptions used in our course?

Answer 1

Marginal utility and total utility can be seen in the real-life situation when a consumer enters the market and make a demand for a product more than one time on a continuous basis.
In a market, one can consume a soft drink according to his preferences. He gets some level of utility from the first consumption, but he can consume more to increase his utility as he likes that soft drink. He purchases one more soft drink that further increases his utility according to his preferences. When he consumes continuously, each additional unit will not give increased or constant utility as the taste and preferences are limited to a specific point, and the utility decreases, according to rational behavior.
The decreased utility gained from a soft drink with each additional unit explains the concept diminishing marginal utility. These findings are developed using the following assumptions:

• He is consuming continuously.
• He is receiving the same product all the time.
• The price level will be the same for each unit.
• Quality of the soft drink will be the same at each unit.