When the consumption of a good or service by one person does not diminish the amount available to someone else the good is said to be quizlet?

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Economic efficiency is when all goods and factors of production in an economy are distributed or allocated to their most valuable uses and waste is eliminated or minimized.

• Economic efficiency is when every scarce resource in an economy is used and distributed among producers and consumers in a way that produces the most economic output and benefit to consumers.
• Economic efficiency can involve efficient production decisions within firms and industries, efficient consumption decisions by individual consumers, and efficient distribution of consumer and producer goods across individual consumers and firms.
• Pareto efficiency is when every economic good is optimally allocated across production and consumption so that no change to the arrangement can be made to make anyone better off without making someone else worse off.

Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.

Some terms that encompass phases of economic efficiency include allocative efficiency, productive efficiency, distributive efficiency, and Pareto efficiency. A state of economic efficiency is essentially theoretical; a limit that can be approached but never reached. Instead, economists look at the amount of loss, referred to as waste, between pure efficiency and reality to see how efficiently an economy functions.

The principles of economic efficiency are based on the concept that resources are scarce. Therefore, there are not sufficient resources to ensure that all aspects of an economy function at their highest capacity at all times. Instead, scarce resources must be distributed to meet the needs of the economy in an ideal way while also limiting the amount of waste produced. The ideal state is related to the welfare of the population with peak efficiency also resulting in the highest level of welfare possible based on the resources available.

Productive firms seek to maximize their profits by bringing in the most revenue while minimizing costs. To do this, they choose the combination of inputs that minimize their costs while producing as much output as possible. By doing so, they operate efficiently; when all firms in the economy do so, it is known as productive efficiency.

Consumers, likewise, seek to maximize their well-being by consuming combinations of final consumer goods that produce the highest total satisfaction of their wants and needs at the lowest cost to them. The resulting consumer demand guides productive (through the laws of supply and demand) firms to produce the right quantities of consumer goods in the economy that will provide the highest consumer satisfaction relative to the costs of inputs. When economic resources are allocated across different firms and industries (each following the principle of productive efficiency) in a way that produces the right quantities of final consumer goods, this is called allocative efficiency.

Finally, because each individual values goods differently and according to the law of diminishing marginal utility, the distribution of final consumer goods in an economy are efficient or inefficient. Distributive efficiency is when the consumer goods in an economy are distributed so that each unit is consumed by the individual who values that unit most highly compared to all other individuals. Note that this type of efficiency assumes that the amount of value that individuals place on economic goods can be quantified and compared across individuals.

Measuring economic efficiency is often subjective, relying on assumptions about the social good, or welfare, created and how well that serves consumers. In this regard, welfare relates to the standard of living and relative comfort experienced by people within the economy. At peak economic efficiency (when the economy is at productive and allocative efficiency), the welfare of one cannot be improved without subsequently lowering the welfare of another. This point is called Pareto efficiency.

Even if Pareto efficiency is reached, the standard of living of all individuals within the economy may not be equal. Pareto efficiency does not include issues of fairness or equality among those within a particular economy. Instead, the focus is purely on reaching a point of optimal operation regarding the use of limited or scarce resources. It states that efficiency is obtained when a distribution exists where one party's situation cannot be improved without making another party's situation worse.

The law of diminishing marginal utility states that all else equal, as consumption increases, the marginal utility derived from each additional unit declines. Marginal utility is the incremental increase in utility that results from the consumption of one additional unit. "Utility" is an economic term used to represent satisfaction or happiness.

• The law of diminishing marginal utility says that the marginal utility from each additional unit declines as consumption increases.
• The marginal utility can decline into negative utility, as it may become entirely unfavorable to consume another unit of any product.
• The marginal utility may decrease into negative utility, as it may become entirely unfavorable to consume another unit of any product.

The marginal utility may decrease into negative utility, as it may become entirely unfavorable to consume another unit of any product. Therefore, the first unit of consumption for any product is typically highest, with every unit of consumption to follow holding less and less utility. Consumers handle the law of diminishing marginal utility by consuming numerous quantities of numerous goods.

The law of diminishing marginal utility directly relates to the concept of diminishing prices. As the utility of a product decreases as its consumption increases, consumers are willing to pay smaller dollar amounts for more of the product. For example, assume an individual pays $100 for a vacuum cleaner. Because he has little value for a second vacuum cleaner, the same individual is willing to pay only $20 for a second vacuum cleaner.

The law of diminishing marginal utility directly impacts a company’s pricing because the price charged for an item must correspond to the consumer’s marginal utility and willingness to consume or utilize the good.

An individual can purchase a slice of pizza for $2, and is quite hungry, so they decide to buy five slices of pizza. After doing so, the individual consumes the first slice of pizza and gains a certain positive utility from eating the food. Because the individual was hungry and this is the first food consumed, the first slice of pizza has a high benefit.

Upon consuming the second slice of pizza, the individual’s appetite is becoming satisfied. They are not as hungry as before, so the second slice of pizza had a smaller benefit and enjoyment than the first. The third slice, as before, holds even less utility as the individual is now not hungry anymore.

The fourth slice of pizza has experienced a diminished marginal utility as well, as it is difficult to be consumed because the individual experiences discomfort upon being full from food. Finally, the fifth slice of pizza cannot even be consumed. The individual is so full from the first four slices that consuming the last slice of pizza results in negative utility.

The five slices of pizza demonstrate the decreasing utility that is experienced upon the consumption of any good. In a business application, a company may benefit from having three accountants on its staff. However, if there is no need for another accountant, hiring another accountant results in a diminished utility, as there is a minimum benefit gained from the new hire.

Diminishing marginal utility is the decline of enjoyment from consuming or buying one additional good. For example, a consumer buys a bag of chocolate and after one or two pieces their utility rises, but after a few pieces, their utility will start to decline with each additional piece that's consumed—and eventually, after enough pieces, will likely result in negative equity.

Marginal utility is the enjoyment a consumer gets from each additional unit of consumption. It calculates the utility beyond the first product consumed. If you buy a bottle of water and then a second one, the utility gained from the second bottle of water is the marginal utility.

The utility is the degree of satisfaction or pleasure a consumer gets from an economic act. For example, a consumer can purchase a sandwich so they are no longer hungry, thus the sandwich provides some utility.