Suppose two out for coffee and donuts at the local donut store. The first donut

Question

Suppose two out for coffee and donuts at the local donut store. The first donut you eat tastes incredibly good. The second one also tastes pretty good. The third donut seems just okay. With the fourth donut you are turning somewhat green. The fifth donut makes you sick. Your friend, an economist, describes your experience as the principle of:

A. utility maximization.
B. irrationality in consumer behavior.
C. instant gratification.
D. differing tastes and preferences.
E. diminishing marginal utilit

Explanation / Answer

In the given case, it can be seen that utility or satisfaction derived by the person from each successive unit consumed is decreasing as the person is increasing his consumption of given commodity.

This decrease in utility with increase in consumption implies operation of law of diminishing marginal utility.

This law states that as consumption of a commodity increases, utility derived from each successive unit consumed goes on declining or decreasing.

Thus, the experience can be described as a principle of diminishing marginal utility.

Hence, the correct answer is option (E).

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