Chapter 10, Problem 2BCQ

To determine

Examples of diminishing marginal utility in practical application.

Introduction: Substitution effect is said to take place during a price or fall in income when buyers replace or substitute utility of expensive commodities with comparatively cheaper alternatives. Subsequently, with a fall in income substitution income will tend to take place more often. The income effect is the change in demand, supply and demand and supply curves that take place when the incomes of an individual or an entire economy change.

The diminishing marginal utility can be defined as the decrease in the satisfaction attained from consumption of each additional unit consumed by the buyer. This implies that as more of a particular commodity is consumed with diminishing marginal utility, the overall satisfaction derived from the product or service is reduced.