Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

Which of the following is a limitation of 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. Marginal utility in certain cases may increase rather than decrease, e.g. consumption of wine by a drunkard.

  2. Utility is not quantifiable, i.e., it cannot be measured.

  3. Consumer does not consume only one commodity in real life. He has to attain equilibrium by consuming a large number of goods and services.

  4. All of above.

Show answer
Correct Option: D
Explanation:

  • There are various exception to the law of diminishing marginal utility like in case of money.
  • We cannot measure our satisfaction in cardinal numbers, we can only measure it as high or low depending upon the product.
  • Consumers consume various commodities, therefore even if the utility of a commodity is high the consumer can switch to some other similar product whose price is low to attend equilibrium. So the consumer anyway attains equilibrium due to feasibility to various products.


Which of the following assumption is NOT applicable for the law of diminishing marginal utility?
(i) All the units of the given commodity are heterogeneous.
(ii) The units of consumption are of unreasonable size.
(iii) The consumer is rational human being and he aims at minimization of satisfaction.

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

  1. (i)

  2. (ii)

  3. (iii)

  4. All of the above

Show answer
Correct Option: D
Explanation:
Assumptions of law of diminishing marginal utility are:
1)Given commodities should be homogeneous in nature.
2)Reasonable sized units are to be consumed.
3)Consumer always want to maximize his utility with his given income and market prices of the commodities.

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 units of consumption are of reasonable size.

  2. There is no unduly long time interval between the consumption of the goods.

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

  4. All of the above

Show answer
Correct Option: D
Explanation:
Assumptions of law of diminishing marginal utility are:
1)Given commodities should be homogeneous in nature, that is, identical commodities.
2)Reasonable sized units are to be consumed.
3)Consumption should be done continuously. No time interval will be entertained between the consumption of the goods.

The doctrine of consumer's surplus is based on _______.

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

  1. elasticity of demand

  2. indifference curve analysis

  3. law of substitution

  4. the law of diminishing marginal utility

Show answer
Correct Option: D
Explanation:

According to the law of diminishing marginal utility as the consumption increases the marginal utility tends to fall. Consumer's surplus is a phenomenon where the marginal utility derived from a product is greater than the price per unit of that product.

The marginal utility(MU) of the last unit of commodity X consumed is twice the MU of the last unit of commodity Y consumed, the consumer is in equilibrium only if:

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

  1. The income of the consumer is doubled

  2. The price of X is equal to the price of Y

  3. The expenditure of X is equal to twice on Y

  4. The price of Y is one half of the price of X

Show answer
Correct Option: D
Explanation:

The Equi-Marginal Utility theory states that consumers will maximise total utility from their incomes by consuming that combination of goods where:

$\dfrac{MU _a}{MU _b} =$ $\dfrac{P _a}{P _b}$

For example, suppose bread = Re.1 and Rice = Rs.2.

  • Rice is twice as expensive as bread. Therefore, it would make sense to choose a quantity of rice, where the marginal utility of rice was twice the MU of bread. Therefore, you would tend to buy such a quantity of rice so as to make sure the marginal utility of rice justifies its higher price.
  • If rice was giving three times as much marginal utility but was only twice as expensive, it would make sense to buy more rice until the marginal utility fell to that ratio.

According 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. as the price of a given product rises, the added benefit eventually diminishes

  2. as the consumption of a given product rises, the added benefit eventually diminishes

  3. as the production cost for a given product rises, the added benefit eventually diminishes

  4. the demand curve for some product is upward-sloping

Show answer
Correct Option: B
Explanation:

Law of diminishing marginal utility is based on psychological law that as more and more units of a commodity is consumed, marginal utility derived from every successive unit will decline in respect to all goods with a few exception.

The laws of DMU is not helpful for?

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

  1. Social welfare programme

  2. Rationing of products

  3. Money

  4. None of the above

Show answer
Correct Option: D
Explanation:

Diminishing marginal utility focuses on how satisfaction level on an individual keeps on decreasing as he consumes more and more units of a commodity which is applicable on all goods and situations except in case of money.

Full form of DMU is ______________.

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

  1. Diminishing Marginal Utility

  2. Distributive Marginal Utility

  3. Direct Marginal Utility

  4. Display Marginal Utility

Show answer
Correct Option: A
Explanation:

Diminishing marginal utility states that when a consumer goes on consuming a standard unit of a commodity, the additional utility in every successive unit of consumption keeps on diminishing. It is based on the assumption that the consumer needs to consume a standard unit of the commodity.

The law of diminishing marginal utility states that as the stock of a commodity _______with the consumer, its marginal utility to the consurner ______

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; Increases

  4. Increases; Increases

Show answer
Correct Option: B
Explanation:

When the commodity consumed by a customer increases it is the normal psychological affect that the satisfaction which that commodity is providing to the customer will decrease. Therefore, for every extra unit of consumption of a commodity, marginal utility derived will decrease.

Diminishing marginal returns occurs because _____________.

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

  1. total output falls once too many workers are involved in the production process.

  2. as more laborers are hired, workers increasingly share use of other fixed inputs, and so their ability to be increasingly productive is limited

  3. the first laborers hired are the most qualified, but as the quantity of labor increases the firm draws from a less qualified pool of labor

  4. unemployment rates mean that qualified labour is more and more difficult to find as hiring of labour increases

Show answer
Correct Option: A
Explanation:

Diminishing marginal returns to labour occurs when the marginal production starts to diminish with increase in the amount of labour used in the production process. This leads to increase in total production at a diminishing rate and a situation may come when the total output is maximized and then tends to fall.