Chapter 9R, Problem 3CTQ

To determine

Links among diminishing marginal utility, demand, and elasticity

Explanation of Solution

Relationship between diminishing marginal utility, elasticity, and demand:

There is a relationship between diminishing marginal utility, demand, and elasticity because the diminishing marginal utility has a direct impact on demand and elasticity. If there is diminishing marginal utility, then people's demand for the good will start to decline at a certain level of consumption and this change in demand leads to a change in the elasticity, which shows how goods are elastic in demand.

The elasticity does not depend on the total utility of the product but depends on the marginal utility because marginal utility shows consumers are willing to pay up to the point where they have more marginal utility than the price of the good. But when the marginal utility diminishes, people stop purchasing more as their demand decreases due to diminishing marginal utility which shows the demand is elastic.

Economics Concept Introduction

Marginal utility is the benefit that a person consumes or enjoys while using an additional unit of a good.

Price is the amount that consumers are ready to pay and elasticity represents how the price of a good affects the demand for the good.