Questions: Multiple Choice Question A family that does not own a refrigerator likely has a strong desire for one, whereas a family with two refrigerators likely has a much-reduced desire for a third. Which of the following best explains this decrease in desire? Law of diminishing marginal utility Principle of opportunity cost Law of diminishing usefulness Substitution effect rule

The answer is A: Law of diminishing marginal utility.

Explanation:

A. Law of diminishing marginal utility: This economic principle states that as a person consumes more units of a good, the additional satisfaction (utility) gained from consuming each additional unit decreases. In this context, the first refrigerator provides significant utility, but the utility of a second is less, and the utility of a third would be even less, explaining the reduced desire.

B. Principle of opportunity cost: This principle refers to the cost of forgoing the next best alternative when making a decision. While relevant in decision-making, it does not directly explain the decrease in desire for additional refrigerators.

C. Law of diminishing usefulness: This is not a recognized economic principle. The concept closest to this is the law of diminishing marginal utility.

D. Substitution effect rule: This refers to the change in consumption patterns due to a change in the relative prices of goods. It does not directly relate to the desire for additional units of the same good.