Question

1) In no more than five (5) lines of typed text below this question, explain what it means when one says that “demand for a product is relatively elastic in nature” and be sure to include a numerical discussion/analysis in your answer.

2) In no more than five (5) lines of typed text below this question define the term marginal utility and describe how it might change as more of a product/good or service is consumed over time.

Answer 1

1) Demand for product is relatively elastic in nature means when the price of the product goes down there will be a change in the demand of the product and the consumers quantity of buying the product. If the price of the product goes up than demand for product goes down thus decreasing the quantity of the product consumed. If the price of the product goes down than demand for product goes up thus increasing the quantity of the product consumed.

Ex: If a person buys 1 kg of tea powder at 25$

if the price goes up he may can only buy 1 kg at 30$ which means the demand for tea powder goes down thus he may go for the substitute coffee which offers 1 kg of coffee powder at 25$

2) The additional benefit or satisfaction that a person gains by consuming any product over time is called marginal utility.

When the person consumes more product than there will be dimnishing marginal utility which means he will get less satisfaction due to buying more which makes him the requirement of that good or service lower and lower until it reaches zero satifaction.

Ex: If a person buys 2 pizza and after that if he buys one more pizza he may have 75% satisfaction of that good.

If the same person buys 10 pizza and again bought one more pizza it will have very less satisfaction when compared to previous case.