Economics Marginal Utility Questions Medium
The relationship between marginal utility and elasticity of supply is indirect and can be explained as follows:
Marginal utility refers to the additional satisfaction or benefit that a consumer derives from consuming one additional unit of a good or service. It is based on the principle of diminishing marginal utility, which states that as a consumer consumes more units of a good, the additional satisfaction derived from each additional unit decreases.
On the other hand, elasticity of supply measures the responsiveness of the quantity supplied of a good or service to changes in its price. It indicates how much the quantity supplied will change in response to a change in price.
The relationship between marginal utility and elasticity of supply can be understood through the concept of price and quantity equilibrium. When the price of a good increases, the quantity supplied tends to increase as well. However, as the quantity supplied increases, the marginal utility derived from each additional unit of the good decreases due to diminishing marginal utility.
As a result, the elasticity of supply tends to be higher when the marginal utility of the good is lower. This is because producers are more willing to supply larger quantities of a good when the additional satisfaction or benefit derived from each unit is lower. Conversely, when the marginal utility is higher, the elasticity of supply tends to be lower as producers are less willing to supply larger quantities due to the higher satisfaction derived from each unit.
In summary, the relationship between marginal utility and elasticity of supply is that as the marginal utility of a good decreases, the elasticity of supply tends to increase, and vice versa.