Question

2. Explain why restaurants that have all you can eat buffets do not go out of business. In your answer explain it using the idea of consumer satisfaction and marginal utility. Name one product that you think has high elasticity and another that you think is inelastic. Explain for each item why you think this is the case. Posted Tue Jul 28, 2020 at 12:01 am Comments There are no comments Write a co

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Answer 1

Ans- a The relationship between diminishing marginal utility and offer of the restaurant of 'all you can eat' is explained below:

Law of DMU- law of diminishing marginal utility states that as we consume more and more unit of a good the successive utility from consuming additional unit of that good goes on falling.

The restaurant owners are very much aware of this concept and understand that a consumer will consume tell that unit where is marginal utility is positive. They knows that when a consumer consumes additional unit that marginal utility declines. That is why the consumer would not go for dissatisfaction and this would make them stop soon.

b) Example of goods having high elasticity of demand : air conditioner (AC)

when percentage change in the quantity demanded is more than percentage change in price the demand for such a commodity said to be highly elastic. When the price of A.C falls, demand for the product immediately rises.

Example of good having less elasticity or inelastic demand: vegetables.
when percentage change in quantity demanded is less than percentage change in price then demand for such commodities is said to be less elastic or inelastic. In case of vegetables even when the price changes by greater percentage, the percentage change in demand is proportionately less as compared to percentage change in price.