Brain imaging provides evidence for the law of ________ utility. Application 1 MEASURING DIMINISHING MARGINAL UTILITY APPLYING

Brain imaging provides evidence for the law of ________ utility. 

Transcribed Image Text:

Application 1 MEASURING DIMINISHING MARGINAL UTILITY APPLYING THE CONCEPTS #1: How does marginal utility change with the quantity consumed? Neuroscientists have used brain imaging techniques to provide some insights into the law of diminishing marginal utility. The scientists offered subjects in an experiment varying monetary rewards, and observed the neural activity in a subject's stria- tum, the region of the brain responsible for the valuation of rewards. As the monetary reward increased, the subjective ben- efit (the utility value, as measured in neuron activity) increased, but at a decreasing rate. In other words, the larger the reward, the lower the marginal utility of the reward money. For example, starting with a $15 reward, the marginal utility was 1 util per dollar, but starting with a $150 reward, the marginal utility was only 0.25 utils per dollar. Although this experiment does not provide a direct demonstration of the law of diminishing mar- ginal utility for a particular product, it does show that general rewards are subject to diminishing marginal utility. Related to Exercise 1.10.