Question : Assertion: The law of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction derived from each additional unit of the good decreases.
Reason: This occurs because the consumer's needs and wants for the good are limited.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct answer is (a) Option A Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
The law of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction (or utility) derived from each additional unit of the good decreases. This occurs because the consumer's needs and wants for the good are limited. Initially, when the consumer has little or no units of the good, each additional unit provides a significant increase in satisfaction. However, as the consumer acquires more units, the marginal utility diminishes because the consumer's desire for the good becomes satiated. This means that the consumer's willingness to pay for additional units decreases, indicating a decrease in the additional satisfaction derived from each unit. Therefore, the reason provided correctly explains why the law of diminishing marginal utility occurs.
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