Test: Theory Of Consumer Behaviour - 2


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QUESTION: 1

The total utility divided by the number of units consumed is known as?

Solution:

Average utility is obtained by dividing the total utility by number of units consumed.

QUESTION: 2

Utility is measured in terms of?

Solution:

Cardinal utility says that utility can be measured numerically.. it means it's possible to know exactly the number of units of utility that a commodity or service has for a consumer. The unit measurements of utility is called 'util'.

QUESTION: 3

The concept of marginal utility was developed by?

Solution:

The concept of marginal utility grew out of attempts by economists to explain the determination of price. The term “marginal utility”, credited to the Austrian economist Friedrich von Wieser by Alfred Marshall, was a translation of Wieser's term “Grenznutzen” (border-use).

QUESTION: 4

Indifference curve represents?

Solution:

An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

QUESTION: 5

Consumer’s surplus is also known as?

Solution:

Consumer surplus is defined as the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price) it is also known as buyer 's surplus.

QUESTION: 6

An indifference curve is always?

Solution:

An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Each indifference curve is convex to the origin, and no two indifference curves ever intersect. Along the curve, the consumer has no preference for either combination of goods because both goods provide the same level of utility.

QUESTION: 7

According to Marshall, the law of diminishing marginal utility applies on ___________?

Solution:

The law of diminishing marginal utility states that with the consumption of every successive unit of commodity yields marginal utility with a diminishing rate. However, there are certain things on which the law of diminishing marginal utility does not apply. 

QUESTION: 8

Consumer’s equilibrium means?

Solution:
QUESTION: 9

MU1 + MU2 + ……..MUn represents?

Solution:

Utility, in ordinary sense, means usefulness. But, in economics, it means want-satisfying power of a commodity or service — the power to satisfy a human want. Utility is addable. One can add utility obtained from each unit of a commodity to get total utility obtained from the entire stock. In other words, by adding marginal utility from successive units, we obtain total utility of the stock.

QUESTION: 10

A budget constraint line is a result of?

Solution:

A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices.

QUESTION: 11

An indifference curve indicates, ceteris paribus?

Solution:

In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. ... In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer.

QUESTION: 12

The coefficient of price elasticity of demand is always

Solution:

The cofficient of price elastcity of demand is always negative which shows the inverse relationship between price and demand of a commodity if one of them increases the other decreases

QUESTION: 13

Utility of a good can be explained as a?

Solution:

Utility, in economics, refers to the usefulness or enjoyment a consumer can get from a service or good. Marginal utility is the utility gained by consuming an additional unit of a service or good.

QUESTION: 14

Which of the following statements regarding ordinal utility is true?

Solution:

In ordinal utility, the consumer only ranks choices in terms of preference but we do not give exact numerical figures for utility.
For example, we prefer a BMW car to a Nissan car, but we don’t say by how much.

QUESTION: 15

Which of the following curve has a negative slope and cannot interest each other?

Solution:

An indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. Along the curve, the consumer has no preference for either combination of goods because both goods provide the same level of utility.
Each indifference curve is convex to the origin, and no two indifference curves ever intersect.

QUESTION: 16

At what point does total utility starts diminishing?

Solution:

The law of diminishing marginal utility is a law of economics stating that as a person in creases consumption of a products while keeping consumption of other product costant , there is a decline in the marginal utility that persob derives from consuming each additional unit of product.

QUESTION: 17

Total utility curve:

Solution:

MU decrease then TU increases at decreasing rate till MU becomes zero. when MU zero then TU maximum and when MU gets negative TU starts fall

QUESTION: 18

Total utility is maximum when?

Solution:
QUESTION: 19

The slope of price line throughout its length?

Solution:

This is because in perfect competition , price line is a straight line. And the ratio (∆TR/∆Q )That is change in total revenue and change in output is constant.{MR=AR}So slope of a straight line is always constant.

QUESTION: 20

Which of the following is not true?

Solution:

Each indifference curve is convex to the origin, and no two indifference curves ever intersect. Consumers are always assumed to be more satisfied when achieving bundles of goods on higher indifference curves. If a consumer's income increases, the curve will move higher up on a graph because the consumer can now afford more of each type of good.

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