a. After paying $1.00, you are allowed to open a newspaper vending machine (i.e.
ID: 1221028 • Letter: A
Question
a. After paying $1.00, you are allowed to open a newspaper vending machine (i.e. get as many as you want, theoretically). In contrast, a soft drink vending machine only drops one can after you pay the same amount of money.After paying $1.00, you are allowed to open a newspaper vending machine (i.e. get as many as you want, theoretically). In contrast, a soft drink vending machine only drops one can after you pay the same amount of money. Why? Please explain the difference in the language of economics.
Explanation / Answer
In economics the law of diminishing marginal utility plays a very important role when we are studying consumer behavior. According to this law the added satisfaction obtained by a consumer from the consumption of a given item declines as he consumes an additional unit of that item. Which means that during a tenure where the taste of the consumer remains unchanged he will go for a particular product as he can afford but as the more of that product is obtained the less he will want an additional unit of it.
Now through this principle let us understand the difference between a newspaper and a soft drink vending machine. The newspaper vending machine opens completely whereas the soft drink vending machine dispenses only one at a time. This is because any customer who purchases a newspaper will hardly go for a second one since the marginal utility of the second paper will be almost near to zero. (please note marginal utility is the utility derived from the last unit consumed). So, for selling of newspaper the basic mantra is the principle of zero marginal utility. Whereas it is the opposite in the case of soft drinks. Here the consumers are allowed to take one can at a time on one payment made. This is because if they allowed the consumer to take as many as they want then the consumer would have cleaned the whole machine because the marginal utility of the soft drink diminishes slowly and the consumer could consume the extra bottles later.
So this choice of different vending techniques is because of the difference in the rate of law of diminishing marginal utility.
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