Reason Based Question’s
(Q1) “Law of diminishing marginal utility will operate even if consumption takes place in intervals”. Defend or refute.
Ans: The given statement is refuted. Law of diminishing marginal utility will operate only when consumption is a continuous process.
(Q2) Total utility increases as long as marginal utility is positive (+).
Ans: True because TU is the sum of marginal utilities and MU is positive.
(Q3) Unless MUM is assumed to be constant, equilibrium of the consumer cannot be specified.
(Q4) The law of diminishing marginal utility is applicable in case of money.
Ans: True, If worth of a rupee is more to the poor than to the rich, the law of diminishing marginal utility should be applicable in case of money.
(Q5) If MU of rupees increases, the quantity demanded of the commodity will also increase.
Ans: False, Quantity demanded will decrease, because corresponding to higher MU of rupees, MU of the commodity should also be higher which is possible only when consumption (quantity demanded) decreases.
(Q6) Navya consumes Pizza and coke and finds her equilibrium. As the price of Coke rises, her marginal utility from Coke falls. Ans : False.
(Q7) Rahul consumes two commodities X and Y whose prices are Rs. 8 and Rs. 12 per unit respectively. He is in a state of equilibrium (utility analysis) when MUx = 3 and MUy = 2, then according to the utility approach Rahul strikes his equilibrium. Ans : False.
(Q8) Utility is directly linked with the usefulness of a commodity. Ans : False.
(Q9) Any consumption beyond the point of satiety leads to disutility. Ans : True.
(Q10) In The law of diminishing marginal utility states that a rise in price of a product results in decline in its marginal utility.
Ans: False. The law states that as we consume more and more units of a commodity, there is decline in marginal utility from it.
(Q11) In case of single commodity, consumer will be in equilibrium when M.U. = Income.
Ans: False , a consumer is in equilibrium when MU = Price, as his behaviour matches with market behaviour in this situation.
(Q12) State with reasons if the following statements are true or false :
(a) At a grand family get-together you go on eating and eating since you have not to pay.
(b) As we consume more units of a commodity, total utility from its consumption keeps falling.
(c) A consumer is said to be in equilibrium when he has allocated his available money income among different uses in such a way that he gets maximum marginal utility for each use.
Ans: (a) False (b) False (c) False.
(Q1) A consumer wants to maximise his satisfaction from commodities X and Y but a rupee worth of marginal utility is not same for commodities. What should be the reaction of consumer?
(Q2) What do you mean by the difference between the maximum amount a person is willing to pay for a good and its market price. Explain with the help of numerical example
(Q3) How many ice-creams will a consumer have, if ice-cream is available free of cost” ?
(Q4) What change will take place in TU, when :
(i) MU curve remains above X-axis;
(ii) MU curve touches the X-axis;
(iii) MU curve lies below the X-axis.
Ans: (i) TU will increase, but a diminishing rate; (ii) TU will be maximum,; (iii) TU starts to fall.
(Q5) Price of coffee rises, while price of tea remains constant. How would the consumer react to this situation to restore his equilibrium ? Use the law of equi-marginal utility.
(Q6) As a consumer, would you equate price of a commodity with total utility or marginal utility ? Give reason in support of your answer.
(Q7) Explain the economic value of the following equation , MUx /Px = MUM when X happens to be a domestic fuel (LPG) and Px is lowered by way of subsidy by the government.
Ans: A consumer compares price with marginal utility of commodity in terms of money (MUx = Py). Taking marginal utility in terms of money constant, a fall in Px (by way of subsidy) would mean MUx is higher than Px. Thus the consumer would increase consumption of LPG. Consumer’s equilibrium is now shifted to higher level of satisfaction.
(Q8) When onion price hits hard, the poor man simply avoids buying it. Explain the Economics of it using utility analysis.
Ans: A consumer compares price with marginal utility in terms of money. He purchases up to the point where MU in terms of money = Price . With rise in price of onion, MUx becomes lower than Px which means a rupee spent on it does not yield rupee worth of utility (satisfaction). As a result, the poor man avoids or stops buying onions
(Q9) If a person drinks two glasses of water and says that his thirst has been quenched, what does this signify ?
(Q10) If a person gets satisfaction of 100 utils from consumption of 10 apples, what is this term called ? If he takes 11 apples then he gets satisfaction equal to 10 utils, what is this term called?
(Q11) Mr. A consumes two commodities X and Y whose prices are Rs. 6 and Rs. 8 per unit respectively. Does Mr. A attains his equilibrium when he is getting marginal utility of X equal to 7 and that of Y also equal to 7?
Ans. Here, 7 > 7 or MUx > MUy. Therefore, Mr. A does not attain his equilibrium at this level.
6 8 Px Py
(Q12) Higher consumption of a particular commodity mean lower and lower marginal utility , but total utility can never be negative. Do you agree ?
Ans: Yes. As the consumer increases the consumption of a commodity, the marginal utility derived from the consumption of that commodity must diminish and even can be negative. But the total utility or total satisfaction derived from that commodity can never be negative. A rational consumer would not like to buy a commodity which offers only negative satisfaction or utility.
(Q13) Does law of diminishing marginal utility apply in the field of education ?
Ans: No, according to law of diminishing marginal utility as we keep on increasing the consumption of a commodity its marginal utility keeps on diminishing. But in case of education, every effort to increase its usage increases utility derived from it, rather than decreasing it.
(Q14) Why should diamond be priced so high and water be priced so low even when water is essential to sustain life while diamonds are not?
(Q15) Do you share the view that while attending a gala together in a family function you keep on eating unending scoops of your favourite ice-cream available on house (i.e., you don’t have to pay any price).
(Q16) Chewing tobacco is harmful for health, yet people are ready to pay high price for it. Give reasons,
(Q17) ‘During economics depression consumer’s equilibrium shifts leftward’. Explain
(Q18) Marginal utility of additional income is relatively higher for low income group class as compare to rich class. Analyse.
(Q19) Why Does The Law Operate ?
Ans: (i) Each particular want is satiable : Since a particular want of the consumer can be fully satisfied, therefore, as he consumes more and more units of a commodity, the intensity of the want diminishes and he gets less and less marginal utility.
(ii) Goods are not perfect substitutes : Different goods are not perfect substitutes of one another in the satisfaction of a particular want. MU of a commodity will not decrease if it could be used as a perfect substitute for another units of commodity.
(Q20) State the law of equi-marginal utility.
(Q21) Once a consumer reaches the point of equilibrium (which is the point of maximum satisfaction) he would not like to change his allocation of expenditure (to good X and Y) even if price of one commodity changes. Do you agree?
(Q22) Explain the meaning and importance of the assumption “Consumption is a continuous activity” in deriving consumer equilibrium under utility analysis.