Diminishing Marginal Utility: Pretend That You Have Just Bee

Diminishing Marginal Utilitypretend That You Have Just Been Sur

Topic: Diminishing Marginal Utility Pretend that you have just been surprised with a genuine email that says you have just been selected by your favorite pizza delivery company that every day for the next month you will receive your favorite pizza for lunch and another of that same favorite pizza for dinner, delivered to your home and ready to eat. Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning. What about your excitement on the 10th day? What about your excitement on the 30th day? Now, pretend that your favorite national brand gasoline company informs you that you have won as much as you want free gasoline, as much as you want, from any of their gas stations, anywhere in the country every day for a year. Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning. What about your excitement on the 10th day? What about your excitement on the 30th day? Again, considering the concept of utility, what makes these two scenarios different?

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The principle of diminishing marginal utility is a foundational concept in economics, illustrating how individual satisfaction or utility derived from consuming additional units of a good or service decreases with each additional unit. When applied to real-world scenarios like receiving free pizza or gasoline, this concept helps explain fluctuations in personal excitement and perceived value over time.

First Scenario: Daily Free Pizza

Initially, on the first day, the excitement of receiving a free pizza from a favorite restaurant would likely be immense. This is because the utility derived from that initial experience exceeds what one might normally encounter, given that the pizza is a preferred choice. The anticipation, novelty, and pleasure of tasting a favored food contribute to a high level of satisfaction, aligning with the law of diminishing marginal utility, where the first unit provides the maximum utility (Keller, 2011).

However, by the tenth day, the excitement begins to diminish noticeably. The novelty wears off, and the repeated nature of the experience reduces the marginal utility. The pizza, while still enjoyable, does not evoke the same level of excitement as initially because the psychological impact of the novelty has lessened, and the individual adapts to the constant availability of the pizza (Mankiw, 2014). The individual’s overall utility might still be positive, but the incremental joy gained from each additional pizza decreases.

By the thirtieth day, the diminishing utility becomes even more pronounced. The individual may begin to view the frequent deliveries as routine or even mundane. The constant availability diminishes the specialness of each meal, and the emotional spike of anticipation fades further. The person may even start to feel fatigue or annoyance, illustrating the law’s assertion that as consumption continues, the extra satisfaction gained from each additional unit decreases, sometimes approaching zero or even negative feelings if over-satiation occurs (Varian, 2014).

Second Scenario: Unlimited Free Gasoline for a Year

In stark contrast, the excitement of winning unlimited free gasoline initially appears even more impactful, especially given the vast utility derived from transportation needs and the financial savings involved. On the first day, the novelty and economic relief produce high utility, as the individual no longer needs to allocate part of their budget to fuel expenses (Case & Fair, 2014). The immediate utility gain can be considered substantial, perhaps more so than with the pizza scenario because gasoline directly impacts essential aspects of daily life, such as commuting and travel.

However, similar to the pizza scenario, by the tenth day, the initial excitement diminishes due to habituation. While the utility from free gasoline still exists, its marginal increase decreases because the individual becomes accustomed to the convenience and does not experience the same level of thrill as at the start (Mankiw, 2014). Moreover, the ongoing availability may lead to overuse or increased demand, but the emotional excitement diminishes as the novelty fades.

By the thirtieth day, the diminishing marginal utility becomes apparent. The initial thrill is replaced by routine acceptance, and the emotional impact diminishes further. Unlike the pizza scenario, the utility gained from free gasoline might plateau or stabilize because transportation needs are ongoing and essential, but the heightened excitement largely subsides. Correspondingly, the concept of utility in this context emphasizes how continual access to a good or service leads to reduced incremental satisfaction over time.

Comparing the Two Scenarios

The key difference between these two scenarios lies in the nature and role of the goods involved. Pizza is a non-essential luxury - its utility is high but also more susceptible to habituation and diminishing satisfaction when received repeatedly (Keller, 2011). Conversely, gasoline plays an essential role in daily mobility and economic activity. Although initial excitement diminishes in both cases, the utility derived from gasoline remains more constant in its necessity, even as emotional excitement wanes (Mankiw, 2014).

Furthermore, the concept of utility highlights the importance of subjective perception; while both scenarios demonstrate diminishing marginal utility, the impact on overall well-being differs because gasoline addresses vital needs, potentially maintaining baseline utility despite diminishing thrill. Pizza, as a leisure or luxury, provides more immediate but transient satisfaction, thus exhibiting a more rapid decline in utility (Varian, 2014).

Another aspect is the role of habituation and overexposure. Repeated consumption of the same good reduces its marginal utility because individuals adapt to those experiences, which is evident in both scenarios. Nonetheless, the practical implications differ — continuous access to gasoline might improve productivity and reduce travel costs, while continuous access to pizza mainly affects leisure and indulgence.

In conclusion, the law of diminishing marginal utility explains why initial excitement from free goods diminishes over time, regardless of the type of good. The utility derived from goods that fulfill essential needs, such as gasoline, tends to sustain a certain baseline, whereas luxury or non-essential goods, such as pizza, quickly lose their initial excitement due to habituation. Understanding these differences can help consumers and policymakers in planning consumption habits and resource allocations to maximize overall utility (Case & Fair, 2014; Mankiw, 2014; Keller, 2011; Varian, 2014).

References

• Case, K. E., & Fair, R. C. (2014). Principles of Economics (11th ed.). Pearson.
• Keller, G. (2011). Economics (8th ed.). Cengage Learning.
• Mankiw, N. G. (2014). Principles of Economics (7th ed.). Cengage Learning.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.
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