Question

As we’re well aware, vending machines are used to sell snacks and beverages, whereas newspapers are sold out of a box that allows anyone to take more than one paper.

·         How does the concept of diminishing marginal utility explain the different distribution techniques for newspapers vs. snacks and beverages?

·         Identify two additional examples of an item whose diminishing marginal utility is high.

Remember: Marginal utility is the change in total utility that results from a one-unit increase in the quantity of a good consumed; diminishing marginal utility is the general tendency for marginal utility to decrease as the quantity of a good consumed increases.

Answer 1

The marginal utility of newspapers diminishes at a high rate. A second copy of the same newspaper would provide almost no marginal utility to the reader. This is why there is a very low probability of someone taking away multiple copies of the same newspaper. This is why newspapers are sold out of a box that allows anyone to take more than one paper.However, the marginal utility of snacks or beverages does not diminish at such a rapid rate. One derives a significant amount of utility from consecutive units of snacks and beverages. This is the reason vending machines are used to sell snacks and beverages to ensure none takes additional units without paying for the same.

Example 1: A crime thriller novel will have high diminishing marginal utility. Reading the same novel once again or buying another copy of the same novel will yield negligible marginal utility.

Example 2: A movie will have high diminishing marginal utility as watching the same movie immediately after will yield significantly low marginal utility.