Test: Theory Of Consumer Behaviour - 2 - Economics MCQ

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

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'.

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).

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.

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.

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.

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. 

Consumer's equilibrium means:
Consumer's equilibrium refers to the position of rest or maximum satisfaction that a consumer achieves when consuming a combination of goods and services. It is the point at which the consumer allocates their income in a way that maximizes their utility or satisfaction.
Explanation:
Consumer's equilibrium is determined by the following factors:
1. Income: The consumer's income determines the amount of goods and services they can afford to consume. It is important to note that consumer's equilibrium is not dependent on the absolute level of income, but rather on the allocation of income among different goods and services.
2. Prices: The prices of goods and services also play a crucial role in determining consumer's equilibrium. The consumer will allocate their income in such a way that the marginal utility per unit of money spent on each good or service is equal. This is known as the principle of equimarginal utility.
3. Tastes and preferences: The consumer's tastes and preferences influence their choices and determine the utility they derive from consuming different goods and services. Consumer's equilibrium is achieved when the consumer allocates their income in a way that maximizes their overall satisfaction, based on their individual preferences.
4. Diminishing marginal utility: The concept of diminishing marginal utility states that as a consumer consumes more of a particular good or service, the marginal utility derived from each additional unit decreases. Therefore, the consumer will allocate their income in such a way that the marginal utility per unit of money spent is equal across different goods and services.
In conclusion, consumer's equilibrium is the position of maximum satisfaction that a consumer achieves when allocating their income among different goods and services. It is determined by the consumer's income, prices of goods and services, tastes and preferences, and the principle of equimarginal utility.

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.

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.

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.

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

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.

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.

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.

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.

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

Explanation:
Total utility refers to the overall satisfaction or happiness derived from consuming a certain quantity of a good or service. To maximize total utility, we need to consider the relationship between marginal utility and total utility.
Marginal utility refers to the additional utility or satisfaction gained from consuming an additional unit of a good or service. It is the change in total utility when one more unit is consumed.
To understand when total utility is maximum, we need to consider the relationship between marginal utility and total utility.
When marginal utility is positive, total utility is increasing. As more units are consumed, the additional satisfaction gained from consuming each additional unit decreases (diminishing marginal utility). Eventually, marginal utility reaches zero and starts to decline, indicating that the total utility is maximized.
Therefore, total utility is maximum when marginal utility is zero. This is because it is at this point that consuming an additional unit no longer increases total utility.
To summarize, total utility is maximum when marginal utility is zero.

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.

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.