Question : Statement 1: Marginal utility is the additional satisfaction derived from consuming one additional unit of a good.
Statement 2: The law of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction derived from each additional unit decreases.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Correct Answer: Both statement 1 and statement 2 are true.
Solution : The correct answer is (c) Option C: Both statement 1 and statement 2 are true.
Statement 1 is true. Marginal utility refers to the additional satisfaction or benefit a consumer derives from consuming one additional unit of a good. It measures the change in total utility resulting from the consumption of an additional unit.
Statement 2 is also true. The law of diminishing marginal utility states that as a consumer consumes more of a good, the additional satisfaction (marginal utility) derived from each additional unit decreases. This occurs because the consumer's needs and wants for the good are limited, and the consumer experiences diminishing returns in terms of satisfaction as consumption increases.
