Tag: consumer equilibrium

Questions Related to consumer equilibrium

A production possibility frontier explains ________ of Economics.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. law of diminishing marginal returns

  2. law of variable proportions

  3. law of marginal utility

  4. water vs. diamond paradox

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Correct Option: A
Explanation:

Production possibility frontier explain the law of diminishing marginal returns as with the consumption of every additional unit of one good ,the consumer is willing to sacrifice much less and less ,in two-commodity case.That is why the production possibility curve is concave to the origin.

The concept of marginal utility plays a central role in ________.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. supply analysis

  2. stock analysis

  3. demand analysis

  4. security analysis

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Correct Option: C
Explanation:

Marginal utility refers to the utility derived from the consumption of an additional unit of a commodity. It is of utmost importance in demand analysis of the consumers. The utility refers to the power of satisfying consumer's wants.

________ says that the additional benefit which a person derives from a given increase in his stock of a thing diminishes with every increase in the stock that he already has.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Marshall

  2. Robbins

  3. Keynes

  4. Smith

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Correct Option: A
Explanation:

Alfred Marshall propounded the law of diminishing marginal utility..He stated that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Which of the following is an exception to the law of diminishing marginal utility?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Reading

  2. Miser

  3. Hobbies

  4. All of the above

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Correct Option: D
Explanation:

Law of marginal does not hold true in case of readers, misers and hobbies as the consumption increases the marginal utility derived from the each successive units tends to rise. For example, if a person's hobby is to collect stamps, then the marginal utility derived by collecting one more unit of stamp will rise.

Which of the following assumption is applicable for the law of diminishing marginal utility?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. The consumer is rational human being and he aims at minimization of satisfaction.

  2. The units of consumption are of reasonable size.

  3. All the units of the given commodity are heterogeneous.

  4. There is long time interval between the consumption of the goods.

Show answer
Correct Option: B
Explanation:

To uphold the law of marginal utility, the reasonable sized units are to be consumed. The law of marginal utility states that as consumption increases, the marginal utility derived from each successive units tends to decline.

The law of diminishing marginal utility states that as the stock of a commodity with the consumer ____, its marginal utility to the consumer _____.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. decreases; decreases

  2. increases; decreases

  3. decreases; remains unchanged

  4. increases; increases

Show answer
Correct Option: B
Explanation:

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

The law of diminishing marginal utility states that as the stock of a commodity increases with the consumer, its ________ to the consumer decreases.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. utility

  2. supply

  3. marginal utility

  4. average utility

Show answer
Correct Option: C
Explanation:

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

_______ states that as the stock of a commodity increases with the consumer, its marginal utility to the consumer decreases.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. The law of demand

  2. The law of diminishing marginal rate of substitution

  3. The law of diminishing marginal utility

  4. The law of equi-marginal utility

Show answer
Correct Option: C
Explanation:

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Which of the following assumptions is applicable under the Marshallian approach of consumer behaviour?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Law of diminishing utility (DMU) holds true.

  2. Marginal utility of money keeps changing.

  3. Utility is ordinally measurable.

  4. All of the above.

Show answer
Correct Option: A
Explanation:

The Law of Diminishing Marginal Utility was given by Alfred Marshall. According to the theory, the marginal utility of a consumer goes on falling as he/she consumes more and more of  a product.

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.

The assumptions of this Marshallian approach of consumer behaviour are:

1. Marginal utility of money is constant.

2. Utility is cardinally measurable which means that the utility or satisfaction of a consumer can be measured in terms of cardinal numbers.

3. The consumer is a rational human being.

"Utility is a subjective concept therefore it could only be ranked" defines the position of  _______.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. cardinal utility theorists

  2. ordinal utility theorists

  3. behavioral theorists

  4. all id the above

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Correct Option: B
Explanation:

According to the concept of ordinal utility approach, it is impossible to measure utility in absolute terms and thus it cannot be compared. The reason for it being that it is a psychological phenomena. However, according to the ordinal utility theorists, a consumer can rank various combinations of goods and services according to his preference.