chapter Seven
Consumer Behavior

I. Law of Diminishing Marginal Utility A. Although consumer wants in general are insatiable, wants for specific commodities can be fulfilled. The more of a specific product that consumers obtain, the less they will desire more units of that product. This can be illustrated with almost any item. The text uses the automobile example, but houses, clothing, and even food items work just as well. B. Utility is a subjective notion in economics, referring to the amount of satisfaction a person gets from consumption of a certain item. C. Marginal utility refers to the extra utility a consumer gets from one additional unit of a specific product. In a short period of time, the marginal utility derived from successive units of a given product will decline. This is known as diminishing marginal utility. D. Figure 7.1 (Key Graph) and the accompanying table illustrate the relationship between total and marginal utility. 1. Total utility increases as each additional tacos is purchased through the first five, but utility rises at a diminishing rate since each tacos adds less and less to the consumer’s satisfaction. 2. At some point, marginal utility becomes zero and then even negative at the seventh unit and beyond. If more than six tacos were purchased, total utility would begin to fall. This illustrates the law of diminishing marginal utility. E. CONSIDER THIS … Vending Machines and Marginal Utility 1. Newspaper vending machines normally allow one to take multiple papers; publishers allow this because they believe that people rarely take more than one paper because the marginal utility of the second paper is often zero, and it has little “shelf life.” 2. Soft drink vending machines distribute one can or bottle at a time. Even if the marginal utility of