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Paper Topic:

Price Elasticity of Demand & Marginal Utility

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Price Elasticity or Demand Marginal Utility

Part A

Based on its definition , the major determinants of price elasticity of demand would be the percentage change of quantity demanded and prices of the goods and services . We can say that a certain good is an elastic or inelastic good based on the above identified determinants of price elasticity of demand (Moffatt 1

Like for instance , let us consider the case of bottled water in the market . Since there are a lot of companies that produces

bottled water this product can only be considered as elastic good because even if the prices of bottled water decrease in the market the demand would change significantly since bottled waters are goods that can be classified as normal goods . Moreover , there are a lot of substitutes for bottled water in the market which makes the demand react instantly on slight changes in the current prices of this kind of goods . On the other hand , the price elasticity of toothpaste is also elastic because the percentage change of demand is significant for a percentage unit change on its prices due to the existence of substitute toothpaste in the market . As for the case of Crest it has inelastic demand elasticity since during the 1950 's it is the only toothpaste that has fluoride and there is an absence of substitute product for this kind of toothpaste at that time Meaning , the demand for Crest toothpaste remains high especially for those people who are health conscious regardless of the price level of the said product . Next product would be Ketchup which also has the same demand elasticity as bottled water and toothpaste- elastic demand . The last but not the least product would be Microsoft Windows operating system . Since majority of computers nowadays uses Windows operating system , the demand for this product is really high and consumers are very much willing to pay even high prices just to have this product . In other words , the percentage change of Windows operating system will not greatly affect the percentage change of demand for this product

Part B

No . of Pizza Slices Consumed 1 20 n .a

2 28 8

3 40 12

4 47 7

5 52 5 Based on the table above , during the consumption of the first slice of pizza , my friend derived a slice of pizza , he derived 28 units of utility and 40 units during the third slice of pizza . On the fourth slice of pizza he looks as if he is not that much eager to get a slice of pizza and derived only 47 units of utility and 52 on the fifth slice of pizza . Based from this data we can now compute for the marginal utility that my friend was able to derive out of consuming 5 out of 8 slices of pizza . We can see clearly that my friend had an increasing marginal utility on consuming slices of pizza up to the 3rd slice . The fourth slice was...

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