# Reason Based & Extra Questions - Indifference Curve Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

## Commerce: Reason Based & Extra Questions - Indifference Curve Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

The document Reason Based & Extra Questions - Indifference Curve Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
All you need of Commerce at this link: Commerce

Reason Based Question’s

(Q1) If IC is not convex at the point of equilibrium , the consumer cannot reach the point of stable equilibrium .
Ans:  True

(Q2) It is because of monotonic preference of the consumer that IC slopes downward .

Ans: False

(Q3) MRS between goods X and Y is determined by the prices of these goods in the market Ans: False it depends on choice and preferences of the consumer )

(Q4) Convexity of IC curve indicates the operation of the law of diminishing marginal utility.

Ans: True, it is basically the law of diminishing marginal utility that leads to diminishing marginal rate of substitution or the convexity of IC curve.

(Q5) When X and Y are consumed, MRS (marginal rate of substitution) is equal to the ratio MUx,/  MUy.
Ans:  True.

(Q6)  If at the point of equilibrium, IC is not convex to the origin, equilibrium will not be stable.

Ans: True.

(Q7) Consuming two goods X and Y Misha is in equilibrium when prices of the two goods are Rs. 4 and Rs. 2 per unit respectively.  At this point, the MRS will be equal to 6.
Ans: False

(Q8) Manish is indifferent to the bundles (4, 7) and (4, B).  Indicate, whether Manish has monotonic preference or not?

Ans: (No, if Manish had monotonic preference, then he would have preferred (4, 8) over (4, 7) as if contains more of one commodity and no less of the other)

(Q9)  An indifference curve is convex to the origin because of the law of equi-marginal utility.

Ans: False.

(Q10)  Marginal rate of substitution remains same along the indifference curve.

Ans: False.  It diminishes along the indifference curve.

(Q11) Two indifference curves intersect each other when they represent same level of satisfaction.

Ans: False.  they can never intersect each other.

(Q12) Only one indifference curve will pass through a given point on an indifference map.

Ans: True , because indifference curves can never intersect each other.

(Q13) State which of the following statement are true/false, with suitable reason.

(a)    Falling MU is the cause of rising total utility.

(b)    Marginal utility of money may or may not be constant under utility analysis.

(c)    Budget Line can also be called as Price Line.

(d)    Comparing between MRSXY = PX/Py and MRSxy < Px/Py, the later one is better for the consumer.

EXTRA QUESTION’s

(Q1) Expain the distinction between the equation of budget line and budget constraint ?

Ans: Budget line :: Px Qx + Py Qy = M which indicates that money spent on all combinations of two goods on the budget line is exactly equal to the money income of the consumer. Budget Constraint :: Px Qx + Py Qy < M  which says that money spent on two goods must be less than or equal to income (M).

(Q2) If the price of good X and Y is given together with the income and information about the curve showing all those combinations of the two goods which will give him the same level of satisfaction, then what combination will give him the maximum level of satisfaction ?

(Q3) “A valid consumers’ equilibrium under ordinal approach cannot be possible without condition of convexity of Indifference curve.”  Do you agree with the given statement?  Support your answer with suitable explanation.

(Q4) How would you as a consumer change your consumption basket when the rate, at which you are willing to substitute good x for good y, is higher than the rate at which market allows you to do it?

Ans: The question implies that MRSxy >   Px/Py

(Q5) What do you mean by (a) convex preferences (b) monotonic preferences ?

Ans: Convex preferences : As a consumer moves from one point to another along an indifference curve, he substitutes one good for the other at a diminishing rate to obtain the same level of satisfaction.  Preferences of this kind are called ‘convex preferences’.

Monotonic preferences:  Consumer prefers more good to less.  Preferences of this kind are called monotonic preferences.

(Q6)  Aarav has a budget of Rs. 48 to be spent on two goods X and Y.  Price of Good-X is Rs. 6 per unit, and of Good-Y is Rs. 4 per unit.  As the price of Good-X falls to Rs. 4, Aarav purchases more of both the goods X and Y.  Use diagram to support you answer.

(Q7)  How would you as a consumer react to the situation when the slope of your indifference curve is greater than the slope of your budget line?

Ans: In a situation when MRSxy > Px/Py.
This happens only when the consumer starts consuming more of X in place of Y.

(Q8) What does indifference map represent ? Can the indifference curve touch either X-axis or Y-axis ? Why or why not ?

(Q9) On what factors, position of budget line depend?

Ans: Two factors namely, income of the consumer and price of the two goods.

(Q10) Only one indifference curve will pass through a given point on an indifference map. Use appropriate diagram.

(Q11) If the income of the consumer remains unchanged and if the price of good-X falls,     intercept of the budget line of Y-axis will remain the same, but on the X-axis it will shift to the left.

(Q12) What is any combination of the amount of two goods consumed by a consumer called ?

(Q13) A consumer was in equilibrium with indifference curve approach. Due to inflationary trend, price of x-good has risen, income remaining constant. What would be the effect upon his equilibrium and demand for both the goods. Show with a suitable diagram.

Ans: With a rise in price of good, budget line will rotate leftward. His equilibrium will shift to a lower indifference curve. He will buy less of X-good and can buy more/less of Y-good.

(Q14) Utility Analysis studies consumer’s equilibrium on the assumption that utility can be expressed in terms of units like 2, 4, 6. Indifference Curve Analysis, on the other hand, assumes that utility cannot be expressed in terms of units; it can at best be compared. Does it mean that consumer’s equilibrium (in terms of the consumption of goods X and Y) should be different, using different assumptions?

Utility analysis and IC analysis are simply the two techniques of analysing consumer’s behaviour. A rational consumer always maximises his satisfaction, spending his given income across goods X and Y. The maximum level of satisfactions should be the same level of satisfaction, and it must mean the same level of consumption of goods X and Y, no matter by which technique we study his behaviour.

(Q15) ‘Utility analysis and Indifference Curve analysis are simply the two techniques of analyzing consumer’s behaviour.’ Do you agree?  Justify.

Ans: Yes

(Q16) Explain the different conditions in which a budget line change. Ramjas always tries to buy that basket of goods which lies on his budget line. Identify the economic value.

(Q17) The given consumer cannot reach the point of stable equilibrium if indifference curve is not convex at the point of equilibrium.’ Comment.

(Q18) How is the nature and slope of indifference curve affected by law of diminishing marginal utility?  Use diagram.

The document Reason Based & Extra Questions - Indifference Curve Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
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