Commerce Exam  >  Commerce Notes  >  Economics Class 11  >  Long Questions With Answers - Theory Of Consumer Behaviour

Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

Q.1. Explain the three properties of indifference curves.
Ans.
Following are the properties of indifference curves.
(i) Indifference Curve Slopes Downwards From Left to Right: An important property of an indifference curve is that it has a negative slope, that is, it slopes downwards from left to right. An indifference curve slopes downward because more of one good means less of the other if Total Utility is to remain unchanged. Refer part (i) of the diagram.
(ii) Indifference Curve is Convex to the Origin: An indifference curve is convex to the origin. Its slope diminishes or becomes flatter as we move downwards, This property of indifference curve follows from the fact that Marginal Rate of Substitution of apples for bananas diminishes as more and more of apples are substituted for bananas, Refer part (ii) of the diagram.
(iii) Two Indifference Curves Never Intersect: Another important property of indifference curve analysis is that two indifference curves cannot intersect each other. The two indifference curves, IC1, and IC2, represent two different levels of satisfaction. If these indifference curves intersect each other, the point of intersection will represent same level of satisfaction, which is not possible. Refer part (iii) of the diagram.
Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

Q.2. Explain the concept of Marginal Rate of Substitution with the help of a numerical example. Also explain its behaviour along an indifference curve.
Ans.
The Marginal Rate of Substitution (MRS) measures the rate at which the consumer is just willing to substitute one good for the other, maintaining the same level of satisfaction. It is the slope of the indifference curve.
When a consumer gets an additional unit of one good and gives up some units of the other goods, his or her satisfaction remains the same. In this case, the utility gained is equal to the utility lost. As the amount consumed of good I increases, the Marginal Rate of Substitution between good I and good 2 diminishes. This is the law of Diminishing Marginal Rate of Substitution.
According to Prof. Bilas, "The Marginal Rate of Substitution of X for Y (MRSXY) is defined as the amount of Y, the consumer is just willing to give up to get one more unit of X and maintains the same level of satisfaction."
The Marginal Rate of Substitution can be explained with the help of the following schedule:
Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour
The schedule indicates that the consumer yjves up 3 banns for getting the 2nd apple, 2 bananas for getting the 3rd apple and I banana for getting the 4th apple. This shows that the Marginal Rate of Substitution along an indifference curve goes on diminishing as more and more apples are substituted for bananas. The diagram represents the indifference curve (IC) for the above schedule. As the consumer moves downwards, from point A to point B, he or she is willing to give up 3 bananas to obtain I apple. As the consumer moves further to the right, his or her willingness to give up bananas for an additional apple declines. The slope of the indifference curve declines as it becomes flatter towards the right. This is the Law of Diminishing Marginal rate of Substitution.
Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

Q.3. Explain consumer's equilibrium in case of a single commodity with the help of a utility schedule.
Ans.
The single commodity equilibrium condition states that a consumer is in equilibrium and derives maximum satisfaction when Marginal Utility of a commodity is equal to its price. This condition of consumer equilibrium can be represented with the help of the following equation:
MUx = Px 

(i) When MUx > Px 
When the Marginal Utility of commodity X is more than its price (MUx > Px) then an increased purchase of the commodity X will increase consumer's Marginal Utility. That is, the satisfaction and welfare of the consumer will increase. The consumer will continue to buy more units of the commodity and the Marginal Utility derived from additional unit will fall until MU becomes equal to price again.
(ii) When MUx < Px 
When the Marginal Utility of commodity X is less than its price (MUx < Px) then a reduced purchase of the commodity X will decrease consumer's Marginal Utility. That is, the satisfaction and welfare of the consumer will decrease. The consumer will continue to reduce the units of the commodity and the Marginal Utility derived from additional unit will increase until MU becomes equal to price again.
Description of the equilibrium of consumer can be shown with the help of the following schedule:
Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour
It is clear from the schedule that consumer will be in equilibrium when he or she is purchasing three units because at this point MUx is equal to price Px. The consumer is getting maximum satisfaction. Thus, he or she will not want to change the condition of equilibrium. Any deviation from this point will lead to a fall in consumer's satisfaction.

The document Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour is a part of the Commerce Course Economics Class 11.
All you need of Commerce at this link: Commerce
75 videos|274 docs|46 tests

Top Courses for Commerce

FAQs on Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

1. What is the theory of consumer behavior?
Ans. The theory of consumer behavior is a branch of economics that studies how individuals make decisions regarding the consumption of goods and services. It aims to understand the factors that influence consumer choices, such as income, prices, preferences, and budget constraints.
2. How does income affect consumer behavior?
Ans. Income plays a crucial role in consumer behavior as it determines the purchasing power of individuals. Higher income levels generally lead to increased consumption as individuals can afford to buy more goods and services. Conversely, lower income levels may result in reduced consumption and a focus on essential needs rather than luxury items.
3. What are the key factors influencing consumer choices?
Ans. Several factors influence consumer choices, including price, income, preferences, advertising, social influences, and product quality. Price and income directly affect the affordability of goods and services, while preferences reflect individual tastes and preferences. Advertising and social influences can also shape consumer behavior by creating awareness, desire, and social pressure to purchase certain products. Product quality, on the other hand, affects the perceived value and satisfaction derived from a purchase.
4. How do budget constraints impact consumer behavior?
Ans. Budget constraints refer to the limited amount of income available to consumers for spending on goods and services. When faced with a budget constraint, consumers must make choices and prioritize their spending. This can lead to trade-offs between different goods and services, where consumers may choose to allocate their limited budget towards the products that provide them with the highest level of satisfaction or utility.
5. How does consumer behavior affect market demand?
Ans. Consumer behavior heavily influences market demand. The choices and preferences of individual consumers collectively form the demand for various goods and services in the market. Understanding consumer behavior helps businesses and policymakers anticipate and respond to changes in demand, allowing them to adjust production levels, prices, and marketing strategies accordingly. By studying consumer behavior, companies can develop products that align with consumer preferences, leading to increased sales and market success.
75 videos|274 docs|46 tests
Download as PDF
Explore Courses for Commerce exam

Top Courses for Commerce

Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev
Related Searches

Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

,

Viva Questions

,

Extra Questions

,

Previous Year Questions with Solutions

,

Objective type Questions

,

ppt

,

Important questions

,

past year papers

,

study material

,

practice quizzes

,

Free

,

Semester Notes

,

Summary

,

Exam

,

shortcuts and tricks

,

Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

,

MCQs

,

video lectures

,

mock tests for examination

,

pdf

,

Class 11 Economics Long Questions With Answers - Theory Of Consumer Behaviour

,

Sample Paper

;