Asked by Aidan Packer on Jun 29, 2024

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Steven consumes staples and paper clips.He is maximizing his utility in consumption of both goods.The price of staples falls.Assuming that diminishing marginal utility applies to both goods,as Steven adjusts to this event,the marginal utility of staples will _____,and the marginal utility of paper clips will _____.

A) rise;fall
B) rise;rise
C) fall;fall
D) fall;rise

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases.

Staples

Basic or essential goods and services that are consumed regularly by individuals or businesses.

Paper Clips

Paper clips are small pieces of bent wire or plastic used for holding sheets of paper together.

  • Integrate the theory of utility maximization to adjust consumer spending due to price variations.
  • Learn how price adjustments impact the marginal utility of the goods consumed.
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MW
Matayiah WhiteJul 02, 2024
Final Answer :
D
Explanation :
When the price of staples falls, Steven will consume more staples due to the substitution effect, leading to a decrease in the marginal utility of staples due to diminishing marginal utility. As he reallocates his budget, consuming fewer paper clips and more staples, the marginal utility of paper clips will rise because he is consuming less of them, and diminishing marginal utility implies that less consumption increases marginal utility.