Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods


Marginal Utility must diminish as more and more standard units of a commodity are continuously consumed.

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

  1. True

  2. False

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Correct Option: A
Explanation:

Marginal utility refers to additional utility which a consumer gets on consuming one extra unit of a commodity. So, as consumer consumes more and more of a commodity, the satisfaction at each level will diminish. This is in accordance with the law of diminishing marginal utility.

Consumer equilibrium can be determined only if the law of diminishing marginal utility holds good.

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

  1. True

  2. False

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Correct Option: A
Explanation:

Consumer equilibrium will be achieved only when MU diminishes as more units of a commodity are consumed. In case MU tends to rise, consumption of a commodity will never reach to an end. Thus, determination of equilibrium will never be possible.

The law of equi- marginal utility explains equilibrium of the _______.

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

  1. consumer

  2. producer

  3. economy

  4. state

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Correct Option: A
Explanation:
  • The law of equi-marginal utility is an extension of law of DMU. It states that with the limited that a person has, he aims to spend it on different commodities and earn maximum and equal satisfaction from them. 
  • He should such a combination of goods so that the utility derived from the last unit of the goods are the same. 
  • Thus, it aims to establish equilibrium at that point where the consumers gets maximum satisfaction by consuming a particular combination of goods. 

The law of equi-marginal utility was stated by _______.

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

  1. Adam Smith

  2. A. C. Pigou

  3. Alfred Marshall

  4. J. B. Say

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Correct Option: C
Explanation:

A consumer is in equilibrium position when marginal utility of money expenditure on each goods is the same. This situation holds the law of equi-marginal utility true. For example: if a consumer consumes oranges and apples, then the marginal utility derived from the last rupee spent on either apples or orange will be same.
This law of equi-marginal utility is stated by a British economist named Alfred Marshall.

_______ states that consumer distributes his expenditure between different goods in such a way that the marginal utility derived from the last rupee spent on each good is the same.

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

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Correct Option: D
Explanation:

The law of equi-marginal utility is based on the law of diminishing marginal utility. The equi-marginal principle states that a consumer will be maximizing his total utility when he allocates his fixed money income in such a way that the utility derived from the last unit of money spent on each good is equal.

 A rational consumer substitutes some units of the commodity of greater utility to some units of the commodity of less utility. The result of this substitution will be that the marginal utility of the former (commodity with greater utility) will fall and that of the latter will rise, till the two marginal utilities are equalized.

Consumer is said to be in equilibrium, maximizing his total utility, when

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

  1. the marginal utilities of the two goods consumed are equal.

  2. the proportions of the marginal utilities and respective prices are equal.

  3. the consumer gets full satisfaction from the consumption.

  4. the consumer feels satisfied with his expenditure on the various goods.

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Correct Option: B
Explanation:

According to the law of equi-marginal utility, a consumer is said to be in equilibrium when the ratio of the marginal utilities of the two commodities and their respective prices are equal. This means that the MU of the last rupee spent on each commodity is the same.

The equation it should satisfy is: MUX /PX = MUY/PY

Law of equilibrium marginal utility was propounded by _______.

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

  1. Marshall

  2. Gossen

  3. Lipsey

  4. Keynes

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Correct Option: B
Explanation:

Hermann Heinrich Gossen was a Prussian economist who propounded the law of equilibrium marginal utility.
The law of equilibrium marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spend on each good is equal. In other words, consumer is in equilibrium position when marginal utility of  money expenditure on each goods is the same.

The law of equi-marginal utility can be presented symbolically as ________.

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

  1. ${ M{ U } _{ a } }/{ { P } _{ a } }={ M{ U } _{ b } }/{ { P } _{ b } }={ M{ U } _{ c } }/{ { P } _{ c } }=..........={ M{ U } _{ n } }/{ { P } _{ n } }$

  2. ${ M{ U } _{ a } }/{ { P } _{ a } }<{ M{ U } _{ b } }/{ { P } _{ b } }<{ M{ U } _{ c } }/{ { P } _{ c } }<..........<{ M{ U } _{ n } }/{ { P } _{ n } }$

  3. ${ M{ U } _{ a } }/{ { P } _{ a } }>{ M{ U } _{ b } }/{ { P } _{ b } }>{ M{ U } _{ c } }/{ { P } _{ c } }>..........>{ M{ U } _{ n } }/{ { P } _{ n } }$

  4. none of the above

Show answer
Correct Option: A
Explanation:
A consumer is in equilibrium position when marginal utility of money expenditure on each goods is the same. This situation holds the law of equi-marginal utility true. For example: if a consumer consumes oranges and apples, then the marginal utility derived from the last rupee spent on either apples or orange will be same.
In this above mentioned formula, 'a' is one good and 'b' is another, but the marginal utility what a consumer derives from each good is same, which is equal to the marginal utility of money.

Which of the following can be treated as limitation of the law of equi-marginal utility?

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

  1. Assumption of rationality is not practicable.

  2. Consumers ignorance is a potent factor that always results in other than equilibrium position.

  3. The assumption that the goods on which the consumer spends his money are perfectly divisible, i.e., goods can be bought even in extremely small quantities does not hold true at times.

  4. All of above

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Correct Option: D
Explanation:

In real life, consumers do not act rationally while measuring the utility of the product which they are purchasing. Consumers ignore to compare the price and utility of different commodities, due to which they cannot make a rational decision. Moreover, the law of equi-marginal utility does not hold good in case of indivisible goods because comparison is not possible.

___________ law is unrealistic in nature.

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

  1. Law of DMU

  2. Law of equi-marginal utility

  3. Both a & b

  4. None of the above

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Correct Option: B
Explanation:

In real life situation, Law of equal marginal utility is very unrealistic because it is very irrational on the part of the consumer to measure his satisfaction in cardinal number to find the utility he is deriving from a product and then comparing it to the price of the product.