This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Another example that illustrates the principle of diminishing returns would be the case in which you give Thom a choice between gold and steak. We all know that a bar of gold is worth more than a steak, so only a fool would choose the steak over the gold, right? Thom knows this. If you ask Thom to choose between a bar of gold and a steak, he will probably choose the gold, and be very excited to have a bar of gold. The marginal utility of that first bar of gold is quite high. An hour later, he will choose another bar of gold, and he will still be happy to get another bar of gold; the marginal utility he gets from the second bar of gold might not be quite as high as the marginal utility from the first bar, but it's still higher than the marginal utility he would get from a steak. This will continue, bar after bar, with the added utility of each bar of gold being a little lower than the last. bar after bar, with the added utility of each bar of gold being a little lower than the last....
View Full Document
This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11