Unit 1: Introduction to

Economics
Lecture 1: Diminishing Marginal Returns
and Choice

1 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Too Much of a Good Thing?
• We all have different things that make us
happy, but in each case we consume
• Consumption makes us happy – but how
happy?
• Make everything free and we do not consume
an infinite amount – why?
• Time constraints can be an issue – other
resources can too?
• What influences the amount of something you
can consume when it is free?

2 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Diminishing Marginal Returns
• Our first unit of U(q)
consumption gives us
great utility, point A on B
the diagram
• By the time we have
looked at the 100th cute
puppy picture we will be
feeling really happy
• How happy will the
101st picture make you?
• Should you be doing A
something else with the
time?
𝑞

3 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Diminishing Marginal Returns 2
C
• Theory tells us the U(q)
extra utility gained D
from each additional B
unit of consumption,
the marginal return,
falls as the quantity
increases
• We would not move to
point C from B
• We would move to
point D, more
A
happiness than B but
less than if all marginal
returns were identical 𝑞

4 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Diminishing Marginal Returns 2
• Following the same U(q)
logic we construct a D
curve of utility against B
quantity
• Curves like this appear
in many places in
Economics and inform
a large amount of what
we study here
• Prices will be
introduced later... A

5 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Scarcity and Choice
• Resources are highly constrained, we can
not meet every single want
• When we have the things we want, we
always want more
• Economies aim to grow – enable the
satisfaction of more wants
• Both images raise many questions about
the process of growth and the wants we
develop – We will think about similar in
the first tutorial
• How do we decide who gets what?

6 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Basic Economic Problem: Unlimited
Wants and Limited Resources

• Land can be used for

many different things

7 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz

 Summary
• Decisions about what to consume are based on how happy it will
make us
• A complex set of factors influence our happiness, but there are
always issues to consider
• The additional benefit we get from consuming one more unit of a
product falls as the amount we are consuming goes up –
Diminishing Marginal Returns
• Resources are scarce so we need something to decide how to
allocate what we have to the wants of the people
• Many mechanisms exist to help with this process, and there are
many ways to think about how to prioritise wants. This course will
equip you to answer the issues raised in this lecture

8 MBA Business Economics Lecture 1, Dr Dawid Trzeciakiewicz