The Law of Diminishing Marginal Utility

The correct answer is option 'A', the Law of Diminishing Marginal Utility. This law states that as a consumer consumes more of a product, the additional satisfaction or utility derived from each additional unit of the product decreases.

Explanation:

The Law of Diminishing Marginal Utility is one of the fundamental principles in economics. It is based on the observation that as individuals consume more and more of a product, the satisfaction or utility they derive from each additional unit of the product tends to decrease.

Key points:
- The law states that the marginal utility of a good or service decreases as a person consumes more of it.
- Marginal utility refers to the additional satisfaction or benefit gained from consuming one more unit of a good.
- This law is based on the assumption that individuals have a limited capacity to derive satisfaction from a particular good.
- As a person consumes more units of a good, the intensity of desire or need for that good tends to diminish.
- For example, let's consider a person consuming slices of pizza. The first slice of pizza may bring great satisfaction, but as the person continues to eat more slices, the additional satisfaction from each subsequent slice decreases.
- This decrease in satisfaction can be attributed to various factors such as satiation, boredom, or the fulfillment of the most urgent needs.
- The Law of Diminishing Marginal Utility helps explain consumer behavior and decision-making. It suggests that consumers are likely to allocate their resources towards goods or services that provide the highest marginal utility or satisfaction per unit of cost.
- As a result, consumers are more willing to pay a higher price for the first unit of a good than for subsequent units.
- This principle has important implications for businesses and producers. It suggests that in order to maximize consumer satisfaction, businesses must carefully manage the production and pricing of their goods to ensure that each additional unit provides sufficient marginal utility to justify its cost.

In conclusion, the Law of Diminishing Marginal Utility states that as a consumer consumes more of a product, the additional satisfaction or utility he derives from the additional consumption decreases. This principle helps explain consumer behavior and has important implications for businesses and producers.