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Which one is not an assumption of the theory of demand based on analysis of indifference curves?
- a)Given scale of preferences as between different combinations of two goods.
- b)Diminishing marginal rate of substitution.
- c)Constant marginal utility of money.
- d)Consumers would always prefer more of a particular good to less of it, other things remaining the same.
Correct answer is option 'C'. Can you explain this answer?
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Which one is not an assumption of the theory of demand based on analys...
Constant marginal utility of money is not an assumption of indifference curve analysis. It's an assumption of law of diminishing marginal utility.
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Which one is not an assumption of the theory of demand based on analys...
Assumptions of the Theory of Demand based on Analysis of Indifference Curves:
1. Given scale of preferences as between different combinations of two goods.
- Consumers have a clear preference ranking for different combinations of goods.
- Consumers can compare the satisfaction obtained from different combinations of goods.
2. Diminishing marginal rate of substitution.
- As a consumer consumes more of one good, they are willing to give up less of the other good to maintain the same level of satisfaction.
- The rate at which a consumer is willing to substitute one good for another decreases as they consume more of one good.
3. Constant marginal utility of money.
- The additional utility a consumer receives from an additional unit of money remains constant.
- This allows the consumer to make rational choices based on the marginal utility of goods, rather than the price.
4. Consumers would always prefer more of a particular good to less of it, other things remaining the same.
- This is the law of demand, which states that as the price of a good increases, the quantity demanded decreases.
- All else being equal, consumers will always prefer to have more of a good rather than less.
The Correct Answer:
Option C, "Constant marginal utility of money," is not an assumption of the Theory of Demand based on Analysis of Indifference Curves. This is because the Theory of Demand assumes that the marginal utility of goods is what matters to consumers, rather than the marginal utility of money. While the Theory of Demand assumes that consumers have a given scale of preferences, diminishing marginal rate of substitution, and a preference for more of a good, it does not assume that the marginal utility of money is constant.
1. Given scale of preferences as between different combinations of two goods.
- Consumers have a clear preference ranking for different combinations of goods.
- Consumers can compare the satisfaction obtained from different combinations of goods.
2. Diminishing marginal rate of substitution.
- As a consumer consumes more of one good, they are willing to give up less of the other good to maintain the same level of satisfaction.
- The rate at which a consumer is willing to substitute one good for another decreases as they consume more of one good.
3. Constant marginal utility of money.
- The additional utility a consumer receives from an additional unit of money remains constant.
- This allows the consumer to make rational choices based on the marginal utility of goods, rather than the price.
4. Consumers would always prefer more of a particular good to less of it, other things remaining the same.
- This is the law of demand, which states that as the price of a good increases, the quantity demanded decreases.
- All else being equal, consumers will always prefer to have more of a good rather than less.
The Correct Answer:
Option C, "Constant marginal utility of money," is not an assumption of the Theory of Demand based on Analysis of Indifference Curves. This is because the Theory of Demand assumes that the marginal utility of goods is what matters to consumers, rather than the marginal utility of money. While the Theory of Demand assumes that consumers have a given scale of preferences, diminishing marginal rate of substitution, and a preference for more of a good, it does not assume that the marginal utility of money is constant.
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Which one is not an assumption of the theory of demand based on analysis of indifference curves?a)Given scale of preferences as between different combinations of two goods.b)Diminishing marginal rate of substitution.c)Constant marginal utility of money.d)Consumers would always prefer more of a particular good to less of it, other things remaining the same.Correct answer is option 'C'. Can you explain this answer?
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