Which of the following statements is true?
A) Marginal utility theory predicts that an increase in a consumer's income increases consumption of all goods.
B) It is possible to derive the law of demand - that a higher price decreases the quantity demanded - using marginal utility theory.
C) Marginal utility theory makes no prediction about a consumer's responses to hikes in the prices of the goods and services he or she consumes.
D) Marginal utility theory predicts that all goods are normal goods and that all goods are substitutes for each other.

Question

Quizplus · Accepted Answer

Marginal utility theory predicts that as a consumer consumes more of a good, the marginal utility (additional satisfaction) they receive from each unit consumed will eventually decrease. This explains why a higher price for a good will decrease the quantity demanded. Therefore, option B is true as it correctly explains how the law of demand can be derived from marginal utility theory. Option A is false as some goods may be inferior goods, so an increase in income may actually decrease consumption. Option C is false as the theory does make predictions about consumer responses to price hikes. Option D is false as not all goods are substitutes for each other and some goods can be categorized as inferior goods.

Which of the Following Statements Is True