Economics 9708/31 — October/November 2023

Background Concept

Total utility (TU) is the total satisfaction a consumer gets from consuming a certain quantity of a good. Marginal utility (MU) is the additional satisfaction from consuming one more unit. The law of diminishing marginal utility states that as consumption increases, the marginal utility derived from each additional unit eventually falls. When marginal utility is positive, total utility increases. When marginal utility is diminishing, total utility still increases, but by smaller and smaller amounts — so it rises at a decreasing rate.

Understanding the Question

The question tests the basic relationship between marginal utility and total utility under a standard assumption. It gives two conditions: marginal utility is positive, and it is diminishing. The task is to determine how total satisfaction (total utility) changes as extra units are consumed. No calculation is needed; it is a conceptual test.

Approach

Recall the definitions: TU increases when MU > 0. The rate of increase of TU is given by MU. If MU is positive but falling, TU increases more slowly with each unit. This matches the description "rises at a decreasing rate".

Step-by-Step Reasoning

1. The question states that MU is positive. This means that each extra unit adds some positive amount to total utility. Therefore, total utility cannot fall; it must rise. This eliminates options A and B (both say total satisfaction falls).

2. The question also states that MU is diminishing. This means that the extra utility gained from each successive unit is smaller than from the previous unit. So total utility is still rising, but the increments are getting smaller. Hence total utility rises at a decreasing rate.

3. Option D says "rises at an increasing rate", which would require MU to be rising, not falling. So D is incorrect.

4. Only option C matches: total satisfaction rises at a decreasing rate.

Key Takeaways

• Always remember: MU > 0 => TU rising; MU < 0 => TU falling; MU constant => TU rising at constant rate; MU diminishing => TU rising at decreasing rate.
• This is a fundamental concept in consumer theory and the basis for the downward-sloping demand curve.

Common Mistakes

• Confusing total utility and marginal utility: some students think that diminishing marginal utility means total utility eventually falls. It does not; it only means the additional gains are smaller.
• Misreading the question: thinking that because MU is positive and diminishing, TU increases at an increasing rate (incorrectly interpreting "diminishing" as the rate of increase of TU).
• Not noticing that the question asks about the effect on total satisfaction, not marginal satisfaction.

Things to Be Careful About

• Pay close attention to the wording: "positive and diminishing" — both conditions are given.
• Think of a concrete example: the first slice of pizza gives huge satisfaction, the second a bit less, the third even less, etc. Each slice still adds to total satisfaction, but by smaller amounts.
• In exam, draw a quick mental graph of TU against quantity: it slopes upward but gets flatter as quantity increases.