1. Diminishing marginal utility means that a. as you consume more of a good, oth

Question

1. Diminishing marginal utility means that

a.   as you consume more of a good, other things constant, the total satisfaction you obtain from consuming this good tends to fall

b. as you hire more labor, other things constant, the total amount produced begins to fall

c. as you hire more labor, other things constant, the marginal product begins to fall

d. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall

e. as you consume more of a good, other things constant, the extra satisfaction you obtain from each extra good becomes negative

2. The "invisible hand" described by Adam Smith refers to the

a. allocative role of markets and market forces

b. importance of government intervention and central planning

c. actions of successful entrepreneurs in directing the economy

d. role of monopolized industries in leading the nation

e. value of religious belief in creating an ideal economy

Explanation / Answer

1)d. as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall

The law of diminishing marginal utility is a law of economics stating that as a person increases consumption of a product, while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

2)a. allocative role of markets and market forces

A term coined by economist Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". In his book he states:

"Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it ... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."

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