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If a household’s marginal utility from some good falls very rapidly as it consumes more of...

If a household’s marginal utility from some good falls very rapidly as it consumes more of it, is the price elasticity of its demand for the good likely to be high or low?

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Answer #1

Marginal Utility : Utility refers to the satisfaction derived from the consumption.

Marginal utility refers to the incremental increase in customer's satisfaction by an another unit of the same product or service.

Price elasticity : If the change in demand is greater than the price it is said to be price elasticity.

ANSWER- " Price elasticity of its demand for the good likely to be 'high.' "

Reason- It relates to the law of diminishing marginal utility.

As the utility falls, when the consumption is high.

And thus if there's a change in price of the good the demand will be more sensitive.

(Please up vote, if it was a help)

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