Question 1: Do young children follow the law of diminishing marginal utility? Question 2: Suppose a...

Question 1: Do young children follow the law of diminishing marginal utility?

Question 2: Suppose a friend says the following. “Marginal utility analysis is useless. The thought of people having internal utility calculators is so silly. I’ve never actually calculated utility from anything I’ve ever purchased.” Do you agree with your friend? Explain.

Expert Solution

1.
Yes, young children follow the law of diminishing marginal utility. For example, when they demand food, they start crying and once they are satiated they leave the food. It only happens when their marginal utility of the food decreases to the point of zero. As a result, the law of diminishing marginal utility is established,
Young children can neither speak like economists nor demand different types of goods and materialistic benefits, but they can show by their expressions regarding their basic needs and it is decreasing in utility with an increase in the level of consumptions.

2.
I do not agree with the friend.
There is no need to make a calculation to establish the marginal utility. It is already present in different activities on a day to day basis. My friend makes decisions regarding what to eat, what to play, how much to study as well as how much time funds he wants to spend to buy a particular good. All these decisions already involve marginal utility analysis where he has fixed the amount of time or funds that makes marginal benefits to be either higher or equal to the marginal cost. Hence, marginal utility analysis is implemented.

Rahul Sunny answered 2 years ago

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