True and False:
Explanation: Law of diminishing marginal utility says that as we consume more of a commodity, marginal utility declines i.e. as we consume more of a good, utility derived from each additional unit of consumption falls. This law is one of the reasons why demand curve is negatively sloped. Since with each additional unit of consumption, marginal utility to consumer falls i.e. the value which the consumer gets from consumption is falling with each additional unit of consumption, so a consumerâs willingness to pay will also fall with increase in consumption and therefore a consumer would be willing to purchase more of the commodity only when its price falls. This implies that law of demand is satisfied and hence we have negatively sloped demand curve.
Explanation: Marginal rate of substitution is defined as ratio of marginal utility of X and marginal utility of Y. Combining this fact with law of diminishing marginal utility, we find that as we consume more of X in exchange of Y, marginal utility of X decreases whereas marginal utility of Y increases and thereby marginal rate of substitution which is the ratio of marginal utility of X and marginal utility of Y diminishes as we consume more of X in exchange of Y.
Explanation: because at the saturation point of any commodity total utility is maximum and therefore marginal utility should be zero not positive at the saturation point.
Explanation: At the optimal choice of any consumer following condition must be satisfied:
Since it is given that = 3, so this condition will be satisfied only when price of Y is thrice of price of X. Hence the given statement is correct.
Explanation: because two substitute goods are always substituted in fixed ratio and that fixed ratio is called marginal rate of substitution. Since marginal rate of substitution can be defined as the ratio of marginal utilities as well, so the ratio of marginal utilities will also be fixed not decreasing in case of two substitute goods.
True and False: