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

Q.1. Define utility.
Ans. The utility is the power to satisfy a want.

Q.2. Define Marginal Utility.
Ans. Marginal Utility (MU) is the additional utility derived from consuming one more unit of a commodity.
MU_n = TU_n — TU_n-1

Q.3. What is Total Utility?
Ans. Total Utility is the total psychological satisfaction derived by a consumer from the consumption of total units of a good.
TU_n= MU₁ + MU₂ + MU₃ + MU_n— ∑MU

Q.4. How are TU and MU related to each other?
Ans. The relationship between TU and MU is as below

• Total Utility is the summation of Marginal Utility derived from each unit, that is, TU = ∑MU
• TU increases so long as MU is positive.
• When MU is zero, TU is maximum.
• When MU is negative, TU starts decreasing.

Q.5. How is Marginal Utility derived from Total Utility?
Ans. Marginal Utility can be derived from Total Utility as:
MU_n = TU_n - TU_n-1 

Q.6. State the shape of the Marginal Utility curve.
Ans. The marginal utility curve slopes downwards from left to right.

Q.7. Is the Law of Diminishing Marginal Utility applicable in the case of money?
Ans. When the worth of a rupee is more to the poor than to the rich, then the law of diminishing MU should be applicable in the case of money.

Q.8. Describe the Law of Diminishing Marginal Utility.
Ans. The Law of Diminishing Marginal Utility states that the amount of good 2 that the consumer is willing to give up for an additional unit of good I diminishes as the amount of good I increases. When consumers continuously consume units of a good, their Total Utility increases, but it increases at a diminishing rate.

Q.9. Explain the difference between cardinal utility and ordinal utility?  
Ans. Following are the points of different cardinal utility and ordinal utility:

Q.10. Describe the Law of Equi-Marginal Utility.
Ans. When a consumer consumes only two commodities (X and Y), his or her equilibrium is determined in accordance with the law of Equi-Marginal Utility. The consumer will allocate his or her money income between two goods in such a way that he or she gets equal Marginal Utility in terms of money from both goods. Thus, the consumer will be in equilibrium when the ratio of the Marginal Utility of good X to the price of X is equal to the ratio of the Marginal Utility of good Y to the price of Y.

Q.11. What is the budget set? Explain what can lead to a change in the budget set.
Ans. The budget set includes all the possible bundles of two goods (commodities) that a consumer- can afford to buy with his or her income at the prevailing market prices. The budget set depends on the income of the consumer and the prices of the goods and services. Accordingly, a budget set will change under the following conditions:

• Change in the money income of the consumer
• Change in the price of any of the goods

Q.12. Define an indifference curve.
Ans. An indifference curve is a locus of all the points representing a combination of two goods among which the consumer is indifferent.

Q.13. Define the indifference map.
Ans. The indifference map is a graph that represents a group of indifference curves, each of them representing a given level of satisfaction.

Q.14. What does an IC show?
Ans. An IC shows a different combination of two commodities, which yields equal satisfaction to the consumer.

Q.15. What is meant by monotonic preference?
Ans. Consumer preferences are said to be monotonic if he or she chooses a bundle, which gives more of either both the goods or at least one good without reducing the quantity of the other.

Q.16. What does the slope of IC indicate?
Ans. The slope of the indifference curve indicates the rate at which the consumer is just willing to substitute one good for the other, maintaining the same level of satisfaction.

Q.17. What is the Marginal Rate of Substitution?
Ans. The marginal Rate of Substitution measures the rate at which the consumer is just willing to substitute one good for the other, maintaining the same level of satisfaction.

Q.18. Describe the properties of the indifference curve.
Ans. Following are the properties of the indifference curve

• Indifference curve slopes downwards from left to right
• Indifference curve is convex to the origin.
• Two indifference curves never intersect each other.
• Higher indifference curve represents a higher level of satisfaction.
• Indifference curves need not be parallel to each other.

Q.19. Describe the assumptions of the indifference curve.
Ans. Following are the main assumptions of indifference curve analysis

• The consumer is rational as he wants to maximize his satisfaction with his limited income.
• The consumer consumes only two commodities.
• There is an ordinal measurement of utility, that is, utility is expressed in ranks
• There is a diminishing Marginal Rate of Substitution.
• There is non-satiety of the consumer.
• The consumer is consistent and transitive in selection.

Q. 20. Define an indifference curve. Explain why an indifference curve is downward sloping from left to right.
Ans.

• An indifference curve is a locus of all the points representing a combination of two goods among which the consumer is indifferent.
• An indifference curve has a negative slope, that is, it slopes downwards from left to right.
• A consumer is confronted with various combinations of two goods, say, X and Y. Each combination gives him the same level of total satisfaction.
• If the total satisfaction is to remain the same, the consumer must part with diminishing units of Y as he or she gets an increasing stock of X.
• The loss of satisfaction to the consumer on account of the downward movement is due to the gain through the rightward movement.