Question No. 1 to 6 are based on the given text.
Read the text
carefully and answer the questions:
When consumers make choices about the quantity of goods and
services to consume, it is presumed that their objective is to
maximize total utility. In maximizing total utility, the consumer faces a
number of constraints, the most important of which are the
consumer's income and the prices of the goods and services that the
consumer wishes to consume. The consumer's effort to maximize
total utility, subject to these constraints, is referred to as
the consumer's problem. The solution to the consumer's problem,
which entails decisions about how much the consumer will consume
of a number of goods and services, is referred to as consumer
equilibrium.
It is the state of balance obtained by end-users of products, which
refers to the number of goods and services they can buy with their
existing level of income and the prevailing level of cost prices.
Consumer’s equilibrium permits a consumer to get the most
satisfaction possible from his income.
Units of X PX Marginal utility Difference maximum
1 10 20 10
2 10 16 6
3 10 10 0
4 10 4 -6
5 10 0 -10
6 10 -6 -16
1. Statement 1: If MUm rises and Px is constant the consumer will
find his equilibrium only if MUx rises.
Statement 2: The consumer is in equilibrium when given his
income and market prices he plans his expenditure in such a
manner that he minimizes his total expenditure.
a. Both the statements are correct
b. Statement 1 is correct and statement 2 is incorrect
c. Statement 1 is incorrect and statement 2 is correct
d. Both the statements are incorrect
2. Determine consumer equilibrium unit from the above table as
shown.
a. 2 unit
b. 4 unit
c. 5 unit
d. 3 unit
3. Noor continues to buy goods X. She reached equilibrium as shown
from the above table. After that, she continues to purchase more
units. After equilibrium unit:
a. total gains will rise
b. total losses will fall
c. total gains will fall
d. total losses will rise
4. Sidharth (a customer) buys good X from the market. Various
factors are to be kept while buying a commodity. Which of the
following factors are not to be taken in course by Sidharth while
purchasing goods based on the above text?
a. Marginal utility of money
b. Price of substitute
c. Price of the commodity
d. Marginal utility of the commodity
5. In a situation when MRS > Px/Py, the consumer would react by:
a. Increasing the consumption of commodity-y
b. Increasing the consumption of commodity-x
c. None of these
d. Diminishing the consumption of commodity-x
6. Which of the following is true if Clarice is at her consumer
equilibrium at 3 units as shown in table?
i. Clarice is on her budget line.
ii. Clarice is on her highest attainable indifference curve.
iii. Clarice is dividing her budget equally across all goods.
a. ii and iii
b. iii only
c. i only
d. i and ii
7. Which of the following statements regarding utility is not true?
a. It is purely a subjective entity.
b. It is a satisfying power of a commodity.
c. It helps consumers to make choices.
d. Utility is always measurable.
8. A shift in the budget line, when prices are constant, is due to:
a. change in income
b. change in utility
c. change in dema
d. change in preferences
9. What is the value of marginal utility at the point of satiety?
a. Maximum
b. Minimum
c. Negative
d. Zero
10. What does monotonicity of preferences imply?
a. Consumer always prefer bundle giving minimum satisfaction
b. Consumer always prefer bundle giving maximum satisfaction
c. Consumer will not prefer bundle giving maximum satisfaction
d. Consumer always prefer bundle giving same satisfaction
11. Assertion (A): Equilibrium occurred only at the point where the
price line intersects the indifference curve and not the point below the
intersection.
Reason (R): At any point below the intersection the consumer is
getting the same amount of good as the point of intersection he is
getting a lesser amount of another good.
a. Both A and R are true and R is the correct explanation of A.
b. Both A and R are true but R is not the correct explanation of
A.
c. A is true but R is false.
d. A is false but R is true.
12. Assertion (A): Marginal rate of substitution is diminishing.
Reason (R): As the consumer is having more and more of Good1,
his intensity of desire to have it tends to fall down.
a. Both A and R are true and R is the correct explanation of A.
b. Both A and R are true but R is not the correct explanation of
A.
c. A is true but R is false.
d. A is false but R is true.
13. State True or False:
PX
a. A consumer strikes his equilibrium when: MRS XY = .
PY
a. True
b. False
b. An increase in income of the consumer is the only cause that
leads to a parallel shift of budget line to the right.
a. True
b. False
14. Fill in the blanks:
a. ________ is defined as the difference between what the
consumer is willing to pay for a product and what he actually
pays.
b. A movement along a given indifference curve is known as
________.
15. Define an indifference map.
16. Define indifference curve.
17. Define an indifference curve. Why is it convex to the origin?
18. How is equilibrium of the consumer affected when MUm
happens to rise and Px is constant.
19. Define Marginal Rate of Substitution. Why is an
Indifference Curve convex?
20. What do you understand by consumer's equilibrium? Give
logical reasoning as to how he reaches his state of equilibrium.
