Question

7. If the MU of a product is high, what can you say about the following:
   1. The shape of the price elasticity of demand for that product.
   2. How high will the price likely to go?

Answer 1

Demand may be a schedule representing the quantities of an honest or service the buyer is in a position and willing to shop for over a given vary of costs.It reflects the approach shoppers react once visaged with variations within the worth of an honest. there's absolute confidence that customers react to cost which there's some hypothetic demand schedule. the important question is what it means that.will demand be understood as some form of subjective live of the advantages that an honest or service provides? underneath what conditions will such helpful results be expected?A definitive answer isn't doable, however in classical economic science the tendency is to assume that demand may be a reflection of the degree of advantages received by intense so as to make sure that markets lead to economic potency, demand should represent the real helpful worth for the buyer of an honest or service. Critics of this classical viewpoint unremarkably argue that demand will be manipulated and doesn't essentially represent the real worth of an honest or service for the buyer (for any.This chapter can 1st develop the standard classical read of demand then later place forth the point of view of additional vital theories. Utility theory is that the common classical clarification for demand.Utility may be a term applied by economists to the advantages or satisfaction obtained from an

honest or service (also from a selected course of action). Utility refers specifically to the consumer’s feeling of satisfaction, not the product’s

quality.A concert within the park by a favourite musician could provide you with tons of utility or satisfaction, however isn't helpful in an exceedingly sensible sense.Demand is that the results of shoppers creating selections among various potentialities. In utility theory the consumers’ objective is just to maximise their utility or satisfaction. shoppers WHO have restricted cash, financial gain or resources got to have full info concerning their own needs and the way the offered selections meet those needs. they have to grasp the important worth of the nice or service and therefore the costs of all-possible alternatives, yet because the quality and sturdiness of these merchandise or services. want|they have} to grasp whether or not the nice or service can operate as publicized and satisfy their need. sometimes this info is additional

simply found with merchandise and services that ar consumed typically and in tiny quantities. as an example, if milk or cereal is purchased each week the buyer can in person become terribly aware of the worth and quality of the merchandise available; thus However, info is tougher to seek out for a product that's solely purchased occasionally like a stereo set, car, or house. the data offered concerning these merchandise is a smaller amount personal and additional addicted to external secondary sources, and therefore is a smaller amount

trustworthy.Utility theorists assume that customers have full info and might create rational choices concerning that merchandise can grant them the foremost utility.it's necessary to assume complete info on behalf of the buyer to demonstrate that markets serve the buyer (not simply the producer).Another assumption of utility theory is that customers ar each self-interested and rational. shoppers rationally create

selections that move them toward their highest level of satisfaction.