Test: Theory Of Consumer Behaviour - 1 - Economics MCQ

Utility can be measured cardinally according to Marshall, but according to Hicks (ordinal approach) we can rank our preferences so utility is not always measurable cardinally.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.  Here, one Util is equivalent to one rupee and the utility of money remains constant.

Marginal Utility or Marginal Satiety – is the additional utility derived from the consumption of an additional unit of a commodity. Therefore, Marginal Utility = the addition made to the Total Utility by consuming one more unit of a commodity.

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on.The neo-classical economist developed the theory of consumption based on the assumption that utility is measurable and can be expressed cardinally. And to do so, they have introduced a hypothetical unit called as “Utils” meaning the units of utility. Here, one Util is equivalent to one rupee and the utility of money remains constant.

An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget. Recent economists have adopted the principles of indifference curves in the study of welfare economics.

Explanation:
In economics, elasticity refers to the responsiveness of demand or supply to changes in price. Elasticity can be either elastic or inelastic.
- Elastic demand refers to a situation where a small change in price leads to a relatively larger change in quantity demanded. This means that when demand is elastic, consumers are very responsive to changes in price.
- Inelastic demand, on the other hand, refers to a situation where a change in price leads to a relatively smaller change in quantity demanded. This means that when demand is inelastic, consumers are not very responsive to changes in price.
Given that the question asks about a "relatively more elastic curve," it implies that the demand curve is elastic, meaning that consumers are highly responsive to changes in price.
Now, let's analyze the given options:
A: Horizontal - A horizontal demand curve indicates perfectly elastic demand, where consumers are infinitely responsive to changes in price. This is not the case in this scenario, as the question specifies a "relatively more elastic" curve.
B: Vertical - A vertical demand curve indicates perfectly inelastic demand, where consumers are not responsive to changes in price. Again, this is not the case in this scenario.
C: Steeper - A steeper demand curve indicates a lower level of elasticity, as a larger change in price is required to bring about a change in quantity demanded. This contradicts the given information about a "relatively more elastic" curve.
D: Flatter - A flatter demand curve indicates a higher level of elasticity, as a smaller change in price leads to a larger change in quantity demanded. This aligns with the given information and is the correct answer.
Therefore, the answer is D: Flatter.

The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price of the good. The producer surplus is the difference between the market price and the lowest price a producer would be willing to accept. For producers, a surplus can be thought of as profit, because producers usually don't want to produce at a loss. The two together create an economic surplus.

D is the correct answer because every additional unit lowers the consumer satisfaction and it tends to lower the total utility....the marginal utility will also becomes low

The want satisfying power of a commodity is called utility. It is a quality possessed by a commodity or service to satisfy human wants. Utility can also be defined as value-in-use of a commodity because the satisfaction which we get from the consumption of a commodity is its value-in-use.

Point of Satiety is defined as '' the point where marginal utility of any commodity is zero''. Thus it is a point where satisfaction of any commodity is zero.