Question

The law of diminishing marginal utility is consistent with the fact that people trade. Do you agree or disagree. Explain your answer.

Answer 1

We agree to this statement because when does marginal utility received from the consumption of a particular commodity is falling for someone, he or she is likely to indulge in trade of this commodity with someone for whom the marginal utility is relatively greater.

If the marginal utility was constant there was no need to trade the commodity with some other person because then there would have been no reduction in the additional utility consumed from an additional unit of a good. Then the consumer would have continued to consume limitless units of that commodity.