Q.1. How is equilibrium achieved with the help of indifference curve analysis?
Ans :- a) In the indifference curve approach, consumer’s equilibrium is achieved at the point at which the budget line is tangent to a particular indifference curve. This is the point of maximum satisfaction.
b) Diagram:
c) Explanation of the diagram:
i) ‘AB’ is the budget line.
ii) It is sure that consumer’s equilibrium will lie on some point on ‘AB’
iii) Indifference map (set of IC1, IC2 , IC3) shows consumers scale of preferences between different combinations of good ‘x’ and good ‘y’
iv) Consumers’ equilibrium will achieve where budget line (AB) is tangent to the IC2.
d) Essential conditions for consumers equilibrium:
i) Budget line must be tangent to indifference curve i.e., MRS xy = Px / Py
ii) Indifference curve must be convex to the origin or MRS xy should decrease.
e) Consumers cannot achieve the following:
i) P and R points on budget line give satisfaction but they lie on lower indifference curve IC1. Choosing point ‘q’ puts him on a higher IC which gives more satisfaction.
ii) He cannot move on IC3, as it is beyond his money income.
Q.2. Explain the factors affecting the market demand of a commodity.
Ans :- i) Market demand is the aggregates of the quantities demanded by all the consumers in the market at different prices.
ii) Factors affecting market demand :
Q.3. Explain the various degrees of price elasticity of demand with the help of diagrams.
Ans: There are five degrees of price elasticity of demand. They are,
Q4. How is equilibrium achieved with the help of indifference curve analysis?
Ans: When a consumer gets the maximum satisfaction from their spending, they are considered to be in equilibrium. This is known as "consumer's equilibrium." It means the consumer has reached the highest level of satisfaction they can get based on their income and the prices of goods. The indifference curve technique helps explain this consumer equilibrium.
Q5. What are the methods of measuring price elasticity of demand?
Ans: The methods of measuring price elasticity of demand include the following:
OR
Example: If the price of a product increases by 10% and the quantity demanded decreases by 20%, the price elasticity of demand is calculated as follows:
This means the demand is elastic.
Example: If the price of a product decreases from $10 to $8 and the total spending increases from $1000 to $1200, then the elasticity of demand is greater than one, indicating elastic demand.
Example: Suppose a demand curve has a price of $5 at the upper segment and $3 at the lower segment, and the quantity demanded changes from 50 to 70 units. Using the formula:
This indicates inelastic demand at this specific point on the demand curve.
These methods help in understanding how responsive the quantity demanded is to a change in price.
Q6. Describe any four factors that affect a commodity’s demand.
Ans: The factors that influence the demand for a commodity include:
Commodity Price (Px):
Consumer Income (Y):
Price of Related Goods:
Tastes and Preferences:
Q.7. A consumer buys 50 units of a good at Rs. 4/- per unit. When its price falls by 25 percent its demand rises to 100 units. Find out the price elasticity of demand.
Ans:- Ed=4
Initial Price (P0)=Rs.4
Q.8. Price elasticity of demand for wheat is equal to unity and a household demands 40 Kg of wheat when the price is Rs.1 per kg. At what price will the household demand 36 kg of wheat?
Ans:
Q.9. The quantity demanded of a commodity at a price of Rs.10 per unit is 40 units. Its price elasticity of demand is -2. Its price falls by Rs.2/- per unit. Calculate its quantity demanded at the new price.
Ans :
Q10. Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in its price?
According to the question:
We can use the elasticity formula:
Putting the values:
Percentage change in demand=−0.2×10
Percentage change in demand=−2%
From the above calculation, we infer that when the price increases and the elasticity of demand is less than 1 (inelastic), the demand decreases by a smaller percentage compared to the price increase. Therefore, the total expenditure on the good will increase.
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1. What is consumer equilibrium and how is it achieved? |
2. What factors affect a consumer's equilibrium and demand for a product? |
3. How does the law of diminishing marginal utility impact consumer equilibrium? |
4. Can a consumer reach equilibrium if the budget constraint changes? |
5. How does the concept of consumer surplus relate to consumer equilibrium and demand? |
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