NCERT Solutions for Class 11 Economics - Theory of Consumer Behaviour

Q1: What do you mean by the budget set of a consumer?
Ans: The collection of all bundles of goods and services that the consumer can buy with their income at the prevailing market prices is called the budget set of a consumer.

In the figure, the whole shaded area represents all the quantities of Good 1 and Good 2 that the consumer can attain within his budget. 

M1 = Rs 20	M2 = Rs 40
P1 = Rs 4	= Rs 8
P2 = Rs 5	= Rs 10

Horizontal intercept

Vertical intercept

Slope

Hence, the vertical intercept, the horizontal intercept, and the slope of the budget line will remain the same. The new budget line will be the same as the old budget line but associated with higher income and higher prices for both goods.

Q8: Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if he/she spends her entire income. The prices of the two goods are Rs 6 and Rs 8. How much is the consumer’s income?
Ans: We can find the consumer's income with the help of the budget line. 

P₁ = Rs 6
P₂ = Rs 8
x₁ = 6
x₂ = 8
Budget line = M = P₁x₁ + P₂x₂
M = 6 × 6 + 8 × 8
M = 36 + 64
M = 100
Thus, the consumer’s income is Rs 100.

Q9: Suppose a consumer wants to consume two goods that are available only in integer units. The two goods are equally priced at Rs 10 and the consumer’s income is Rs 40.
(i) Write down all the bundles that are available to the consumer.
(ii) Among the bundles that are available to a consumer, identify those that cost will him/her exactly Rs 40.
Ans: (i) P₁ = Rs 10
P₂ = Rs 10
M = Rs 40
Budget set ⇒ P₁x₁ + P₂x₂ ≤ M
10x₁ + 10x₂ ≤ 40
The bundles that are available to the consumer should cost less than or equal to Rs 40.

As the consumer’s preferences are monotonic, more is better and he will prefer bundle I over the rest of the bundles. This means that bundle I will be assigned a higher utility number i.e., three (rank = three) out of the available three bundles, followed by bundle II and finally bundle I. 

Q13: Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Ans: It is given that my friend is indifferent towards the bundles (5, 6) and (6, 6). This implies that his/her preferences are not monotonic. If he/she is indifferent towards both bundles, then it means that he/she derives the same level of satisfaction and assigns them the same rank. However, the second bundle consists of more of both goods. Thus, according to the monotonicity assumption, he/she must prefer the second bundle over the first.

Q14: Suppose there are two consumers in the market for a good and their demand functions are as follows:
d₁(p) = 20 − p for any price less than or equal to 20 and d₁(p) = 0 at any price greater than 20.
d₂(p) = 30 − 2p for any price less than or equal to 15 and d₁(p) = 0 at any price greater than 15.
Find out the market demand function.
Ans:

For a price less than Rs 15 (p ≤ 15)
Market demand for a good = d₁ (p) + d₂ (p)
= 20 − p + 30 − 2p
= 50 − 3p
For prices more than Rs 15 but less than Rs 20 (15 <p≤20)
Market demand = d₁(p) + d₂ (p)
= 20 − p + 0 ( for p > 15, d₂ (p) = 0)
= 20 − p
For prices more than Rs 20 (p> 20)
Market demand = d₁(p) + d₂ (p)
= 0 + 0 ( for p > 10, d₁ (p) = 0, d₂ (p) = 0)
= 0
Thus, market demand
= 50 − 3p if p ≤ 15
=20 − p if 15 < p ≤ 20
= 0 if p > 20

Q15: Suppose there are 20 consumers for a good and they have identical demand functions:
D(p) = 10 − 3p for any price less than or equal to and d₁(p) = 0 at any price greater than .
What is the market demand function?
Ans: d(p) = 10 − 3p if p ≤

d₁ (p) = 0 if p >
Market demand = Summation of demand of all the consumers in the market

• For price ≤

Market demand = 20 ∑d (p) (Since consumers have identical demand curve)

= 20 × (10 − 3p)
= 200 − 60p

• For price >

Market demand = 20 × d₁(p)
= 20 × 0

= 0

Q16: Consider a market where there are just two consumers and suppose their demands for the good are given as follows:
Calculate the market demand for the goods.
Ans:

Q17: What do you mean by a normal good?
Ans: Those goods that share a positive relationship with income but a negative relationship with price are called normal goods. In other words, if the income of a consumer increases, then the demand for a normal good also increases. However, the demand will fall with the rise in the price of that good.
That is,
If the price of a good (P_x) increases, then the demand for a good (D_x) decreases.
If a consumer’s income (M) increases, then the demand for good D_x increases.

Q18: What do you mean by an ‘inferior good’? Give some examples.
Ans: Inferior goods are those goods that share an inverse relationship with their prices and with the income of a consumer. That is, if the income of the consumer falls, then the demand for an inferior good will rise. Inversely, if the income of the consumer increases, he will consume less of the inferior good.
Examples: Coarse cereals, bidis, etc.

Q19: What do you mean by substitutes? Give examples of two goods that are complements of each other.
Ans: Those goods that can be consumed in place of other goods are called substitute goods. Example: Tea and coffee are goods that can be substituted for each other. If the price of tea increases, then the demand for tea will decrease and people will substitute coffee for tea, which will increase the demand for coffee.
The demand for goods moves in the same direction as the price of its substitutes.
Price of tea (P_T) increases →Demand for tea (D_T) decreases →Demand for coffee(D_C) increases.

Q20: What do you mean by complements? Give examples of two goods that are complements of each other.
Ans: Those goods that are consumed together are called complementary goods. Example: Tea and sugar. If the price of sugar increases, then it will lead to a decrease in the demand for tea. If the price of tea increases, then it will reduce the demand for sugar. The demand for goods moves in the opposite direction of the price of its complementary goods. That is, If the price of tea (P_T) increases, then the demand for sugar (D_S) decreases. If the price of sugar (P_S) increases, then the demand for tea (D_T) decreases.

Q21: Explain the price elasticity of demand.
Ans: Price elasticity of demand is the measure of the degree of responsiveness of the demand for a good to the changes in its price. It is defined as the percentage change in the demand for a good divided by the percentage change in its price.