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

Q1. Define utility.
Ans: Utility is the measure of satisfaction, value, or benefit that a consumer gains from consuming goods and services. For example, if a person gains a high level of satisfaction from drinking a cup of coffee, this consumption has high utility for them. 

Q2. Define Marginal Utility.
Ans: Marginal Utility (MU) is the additional utility derived from consuming one more unit of a commodity. It can be denoted as:
MU_n = TU_n — TU_n-1

Where MU is the marginal utility and TU is the total utility. For example, if eating one slice of pizza gives you 10 units of satisfaction, and a second slice gives you 8 more units of satisfaction, the marginal utility of the second slice is 8.

Q3: 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

For instance, if eating the first slice of pizza gives 10 units of satisfaction and the second slice gives an additional 8 units, then the total utility after consuming two slices would be 18 units (10 + 8).

Q4: 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.

Q5: How is Marginal Utility derived from Total Utility? 
Ans: Marginal Utility (MU) is derived from Total Utility (TU) by measuring the change in total utility that results from consuming an additional unit of a good or service.
MU_n = TU_n - TU_n-1 

Q6: State the shape of the Marginal Utility curve. 
Ans: The marginal utility curve slopes downwards from left to right.

Q7: Is the Law of Diminishing Marginal Utility applicable in the case of money? 
Ans: Yes, the Law of Diminishing Marginal Utility applies to money too. This law means that the more of something you get, the less extra satisfaction you feel from each new unit. If someone has very little money, each extra rupee is very valuable because it can help buy essential things like food or shelter. As they get more money, each extra rupee becomes less important since their basic needs are already met, and extra rupees are likely spent on non-essential things.

Q8: 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 1 diminishes as the amount of good 1 increases. When consumers continuously consume units of a good, their Total Utility increases, but it increases at a diminishing rate. 

Q9: Explain the difference between cardinal utility and ordinal utility.  
Ans: The following are the points of different cardinal utility and ordinal utility:

Q10: 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.

Q11: 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

Q12: 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.

Q13: 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.

Q14: 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.

Q15: 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.

Q16: Describe the properties of the indifference curve. 
Ans: The following are the properties of the indifference curve

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

Q17: Describe the assumptions of the indifference curve. 
Ans: The 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 a non-satiety of the consumer.
• The consumer is consistent and transitive in selection.

Q18: Explain the five degrees of elasticity of demand.

Ans:

1. Perfectly inelastic demand: - Even with a change in price, there is no change in the quantity demanded, the demand is said to be perfectly inelastic Ed =0. The demand curve is parallel to OY axis.
2. Perfectly elastic demand:- Even with no change in price there is a great change in quantity demanded, then the demand is said to be perfectly elastic.  The demand curve is parallel to OX axis.
   
   
3. Unitary elastic demand: When proportionate change in quantity demanded is equal to proportionate change in price, Ed is equal to unity. The demand curve resembles a rectangular hyperbola.
4. Relatively less elastic: When a proportionate change in quantity demanded is less than the proportionate change in price, Ed is less than unity.
5. Relatively more elastic: When a proportionate change in quantity demanded is more than a proportionate change in price, Ed is greater than unity.

Q19: Explain any four factors that affect the elasticity of demand.
Ans: The following are the factors affecting the price elasticity of demand:

1. Availability of close substitutes: If close substitutes of products are available, the commodity tends to be more elastic, If they are not available, they tend to be less elastic.
2. The proportion of total expenditure spent on the product: If the amount spent on a product constitutes a very small fraction of the total expenditure, then the demand tends to be less elastic if the amount spent is high the elasticity of demand tends to be high.
3. Habits: A commodity if it forms an essential part of the individual, the demand tends to be inelastic.  It is consumed casually; the demand tends to be elastic.
4. Time period: The longer the time period, the more elastic the demand for any product the shorter the time period, the less elastic the demand for any products.

Q20: What is meant by consumer’s equilibrium? State its conditions in the case of the two commodities approach.
Ans:
1. Meaning: A consumer is to be at equilibrium when he is spending his given income on various goods and services to get maximum satisfaction.

2. Conditions:
i. MUx / Px = MUy / Py (MUs are equal to their prices)
ii. PxQx+ PyQy =M (Money spent is equal to income)