Future Business Leaders of America (FBLA) Agribusiness Practice Test

What does the concept of diminishing marginal utility refer to?

1. Increased satisfaction with more consumption

2. Decline in utility or benefit as consumption increases

3. The consistency of satisfaction from a product

4. The total utility gained from all consumptions

The correct answer is: Decline in utility or benefit as consumption increases

The concept of diminishing marginal utility refers to the decline in additional satisfaction or benefit that a consumer derives from consuming each additional unit of a good or service. As a person consumes more units of a product, the satisfaction gained from each subsequent unit tends to decrease. This phenomenon is crucial in understanding consumer behavior and helps explain why individuals may choose to diversify their consumption instead of solely focusing on one item. For example, if someone eats one slice of pizza, they might enjoy it significantly. However, if they continue to eat additional slices, they will likely find less satisfaction with each slice due to their increasing fullness. This gradual decrease in satisfaction illustrates diminishing marginal utility, which is important in economics for understanding demand curves and pricing strategies.