(Consumer Equilibrium, Utility Analysis)

TRUE / FALSE TYPE QUESTIONS.

1. A consumer is in equilibrium when he earns maximum profits?

2. In case of a single commodity, consumer will be in equilibrium when M.U. = Income?
3. In case of 2 commodities, consumer is in equilibrium when M.U.x/Income = M.U.y/Income?
4. T.U. increases as long as M.U. is positive?
5. T.U. starts declining when M.U. starts declining?
6. Utility is directly linked with the usefulness of a commodity?
7. Any consumption beyond the point of saturation leads to disutility?
8. If M.U.x/Px > M.U.y/Py, then consumer should buy more of Y and less of X?

DIRECT QUESTIONS

1. Explain the following terms: Marginal utility, total utility, and marginal utility of money.
2. What is consumer’s equilibrium? Explain consumer’s equilibrium in case of a single commodity with
the help of schedule and diagram.
3. Explain the conditions of consumer’s equilibrium in case of 2 commodities.
4. Discuss the relation between T.U. and M.U.
5. State and discuss the law of diminishing marginal utility.

HOTS (Higher Order Thinking Skills)

1. Consumer’s equilibrium is price sensitive. Do you agree?
2. Starting from an initial situation of consumer’s equilibrium. Suppose the M.U. of a rupee increases. Will
it increase or decrease the quantity demanded of the product?
3. Law of diminishing marginal utility will operate even if consumption takes place in intervals. Defend or
refute.
4. What changes will take place in T.U. when a) M.U. remains above the X axis b) M.U. touches X axis c)
M.U. lies below X axis.
5. A consumer consumes only 2 goods X and Y and is in equilibrium. Price of X rises. Explain the reaction
of the consumer with the help of utility analysis.
6. A consumer consumes only 2 goods X and Y and is in equilibrium. Price of X falls. Explain the reaction
of the consumer with the help of utility analysis.
7. A consumer consumes only 2 goods X and Y. at a consumption level of these two goods, he finds that
the ration of M.U. to price in case of X is higher than in case of Y. Explain the reaction of the consumer.
8. A consumer consumes only 2 goods X and Y. at a consumption level of these two goods, he finds that
the ration of M.U. to price in case of X is lower than in case of Y. Explain the reaction of the consumer.
9. Explain consumer’s equilibrium from following table when a consumer want to spend 7 units of money
upon both the goods where Px & Py =1
Units 1 2 3 4 5
M.U.x 12 10 8 6 4
M.U.y 10 8 6 4 2
10. Given below is the utility schedule of a consumer for commodity X. the price of the commodity is Rs. 6
per unit. How many units the consumer should purchase to maximize satisfaction? (Assume that utility
is expressed in utils and 1 util=Rs.1). Give reason.
Units 1 2 3 4 5 6
T.U. 10 18 25 31 34 34
M.U. 10 8 7 6 3 0
 (Consumer Equilibrium-Indifference curve analysis)

TRUE / FALSE TYPE QUESTIONS.

Q1. A consumer is in equilibrium where indifference curve equals budget line?

Q2. All points below the budget line show the various possible bundles which cost exactly equal to consumer’s
money income?
Q3. M.R.S. remains the same along the indifference curve?
Q4. An indifference curve is convex to the origin because of rising M.R.S.?
Q5. 2 indifference curves intersect each other when they represent same level of satisfaction?
Q6. An indifference curve always slopes downward from left to right?
Q7. A consumer’s equilibrium is always formed at a point on the given budget line?

MOST EXPECTED QUESTIONS

Q1. Discuss in detail the following concepts: a) Indifference curve b) Indifference map c) M.R.S and d)
monotonic preferences.
Q2. Explain the conditions of consumer equilibrium through indifference curve analysis.
Q3. Briefly explain the concept of budget line and budget set.
Q4. Discuss the properties of indifference curve.

HOTS (Higher Order Thinking Skills)

Q1. What does the point on budget line indicates in terms of price?
Q2. A consumer consumes only 2 goods X and Y. her money income is Rs. 24 and prices are Rs. 4 and Rs. 2
respectively. Answer the following questions: a) Can the consumer afford a bundle of 4X and 5Y? b) What will
be M.R.S. where consumer is in equilibrium?
Q3. Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2, if he spends his entire
income. The prices of 2 goods are Rs. 6 and Rs. 8. How much is his entire income?
Q4. If a consumer has monotonic preferences, can he be indifferent between the bundles (10,8) and (8,6)?
Q5. Why M.R.S. declines as we move along the indifference curve?
Q6. Distinguish between cardinal utility and ordinal utility?
Q7. A consumer consumes only 2 goods with his income of Rs. 50. Price of X good is Rs. 8 and Y good is Rs.
5. Can he buy? :
a) 6X and 2Y
b) 5X and 2Y
c) What will be M.R.S. at the point of equilibrium?
Q8. A consumer’s budget is Rs 40. He is buying Good-1 and Good-2. Price of Good-1 is Rs 8 per unit and of
good -2 is Rs 10 per unit. Draw a budget line on the basis of these figures.
Q9. Explain the reaction of consumer when price ratio is higher than MRS.
Q10What is the slope of Budget Line.
Q11What are monotonic preferences.