Question from Past Microeconomics Qualifying ExamEdit
Spring 2004 - Section I, Question seven, George Mason University
State first whether the following statement is true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.
Since human wants are insatiable, diminishing marginal utility is not a very useful concept.
False. In a one-good world with no tradeoffs whatsoever (i.e., not even between work and leisure), it's true that the concept would not be useful. However, our world has multiple goods including leisure and money. Diminishing Marginal Utility is a useful shorthand for the phenomenon that economic agents generally have decreasing willingness to pay (in other goods) for successive units of any one particular good.