Meaning of “diminishing marginal benefits”, its occurrence for goods that have very high value for an economic agent and exceptions to the concept.

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Chapter 4, Problem 2Q

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Meaning of “diminishing marginal benefits”, its occurrence for goods that have very high value for an economic agent and exceptions to the concept.

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All goods have diminishing marginal utility, but for some goods (or activities), marginal utility falls quickly as you consume more, while for others, marginal utility falls slowly. Can you think of examples of goods that you continue to enjoy a great deal as your consumption increases? Can you think of goods for which your marginal utility decreases rapidly?

According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana? They are both luxury goods. There is no relationship between the two goods. The two goods are substitutes in consumption. The two goods are complements in consumption.

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