CONSUMER’S EQUILIBRIUM

(I).MULTIPLE CHOICE QUESTIONS

Q.1 Utility in economics means:

(a) Want Satisfying power of a commodity (b) Pleasure

(c) Happiness (d) Usefulness

Q.2 Marginal utility is:

(a) Total minus average utility (b) Addition to total utility

(c) Total plus average utility (d) Total utility divided by the number of units.

Q.3 When total utility increases at a diminishing rate marginal utility is :

(a) Negative and increasing (b) Negative and declining

(c) Zero (d) Positive and declining

Q.4 At the saturation point for commodity X, the MUx is:

(a) Positive (b) Negative

(c) Zero (d) Any of the above

Q.5 The total utility is maximum when:

(a) MU is Zero (b) MU is maximum

(c) AU is maximum (d) MU is equal to AU

Q.6 Marginal Utility can be calculated by the formula

(a) MUn = TU𝑛 − 𝑇𝑈𝑛 + 1 (b) MUn= TU𝑛 + 1 − 𝑇𝑈𝑛 − 1

(c) MUn= TU𝑛 − 𝑇𝑈𝑛 − 1 (d)MUn = TU𝑛 + 2 − 𝑇𝑈𝑛 + 1

Q.7 The falling part of TU curve shows:

(a) Falling marginal Utility (b) Zero marginal utility.

(c) Negative marginal Utility (d) Rising marginal utility

Q.8 If the consumer consumes only one commodity ‘X’, he will be in equilibrium when:
 (a) MUx < Px (b) MUx >Px

(c) MUx = Px (d) None of the above

Q.9What happens to MU when TU is maximum and constant?

(a) marginal Utility declines (b) marginal utility is zero.

(c) marginal utility is negative (d) marginal utility is constant

Q.10 When only one unit of a commodity is consumed:

(a) MU = TU (b) MU < TU

(c) MU > TU (d) MU =1

(II). FILL IN THE BLANKS

1 The satisfying power of a commodity is called _________(value/utility).
2 Utility derived from an additional unit is called _________(marginal/total).
3 As we consume more and more units of a commodity its total utility
__________(increases/decreases).
4 When consumption of a commodity increases, marginal utility__________(diminishes/increases)
5 Total utility is maximum when marginal utility__________(zero/maximum).
6 Total Utility is obtained by the _________ of marginal utilities.(addition/deduction)
7 The fundamental law of utility approach to consumer’s equilibrium is_____________(law of
demand/Law of diminishing marginal utility).
8 Law of diminishing marginal utility states that when more and more units of a commodity are
consumed, marginal utility________(falls/rises).
9 Marginal utility is __________when total utility diminishes.(positive/negative)
10 Total utility _______ when marginal utility is decreasing but positive.(increases/decreases)

(III). MATCH THE COLUMNS BELOW: Identify the incorrect match from those given below:
1.
Column A Column B
(i) equilibrium (a) state of rest
(ii) consumer’s equilibrium (b) maximum satisfaction
(iii) Law of Diminishing Marginal Utility (c) increasing marginal utility
(iv) Total utility (d) sum of marginal utilities
2.
Column A Column B
(i) Total Utility is rising (a) Marginal Utility is positive
 (ii) Total Utility is falling (b) Marginal Utility is negative
(iii)Total Utility is maximum (c)Marginal Utility is constant
(iv) Total Utility is constant (d)Marginal Utility is zero

(IV). TRUE/FALSE
1.A consumer is in equilibrium when he gets utility from a good.
2. Utility and satiety mean the same.
3.Total utility decreases when marginal utility is negative.
4. A consumer is said to be in equilibrium when the price of a good is equal to the total utility derived
from the consumption of a certain number of units of the commodity
5.Total utility is the sum of marginal utilities.
6.Total gain to the consumer starts to rise beyond the point of equilibrium.
7. The utility approach assumes that utility cannot be measured
8. The point of satiety lies where MU = 1.
9. The TU on consuming 9 units of a commodity is 55, when the consumer consumes the 10th unit his
TU is 62. The value of MU of the 10th unit will be 7
10 MU = TUn + TUn-1

(V). VERY SHORT ANSWER QUESTIONS:

1.Define utility.
2 Define total utility.
3 Define marginal utility.
4 State the ‘Law of Diminishing Marginal Utility’.
5 How is Total Utility derived from marginal utilities?
6. Who is a consumer?
7. Define consumer’s equilibrium.
8. State the condition of consumer’s equilibrium in a single good case.
9. How is total gain to a consumer calculated?
10. MUx= 20utils; given 1Re = 2 utils how much is the MUx in monetary terms?