Tag: consumer equilibrium

Questions Related to consumer equilibrium

Which one is not an assumption 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. Rational consumer

  2. Short period

  3. Cardinal utility

  4. Substitution of goods

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Correct Option: D
Explanation:

Substitution of goods is not an assumption under law of DMU, because if one good substitutes for another then law of DMU will not remain applicable.

Marginal utility (MU) curve is always ________.

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

  1. rising

  2. falling

  3. parallel to x-axis

  4. parallel to y-axis

Show answer
Correct Option: B
Explanation:

The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derived the demand curve. 
The marginal utility curve is negatively sloped. It decreases as the number of rides increases. Each additional ride adds less utility that the preceding one.

Law of diminishing marginal utility states that ____________.

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

  1. with successive increase in consumption of additional units, marginal utility also increases

  2. with successive increase in consumption of additional units, marginal utility decreases

  3. with successive increase in consumption of additional units, marginal utility remains constant

  4. with successive increase in consumption of additional unit, marginal utility first increases then decreases

Show answer
Correct Option: B
Explanation:

Law of diminishing marginal utility states that with the increase in consumption, the marginal utility gets decreased .This happens because in two commodity case a consumer is willing to sacrifice less of one good for consuming an additional unit of another good.

Which of these is not an essential assumption of law of diminishing marginal utility concept?

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

  1. Different units consumed should be identical

  2. Consumers taste and preference should not change

  3. There should be some time gap between consumption

  4. The different units consumed should consist of standard unit

Show answer
Correct Option: C
Explanation:

One of the assumption of law of diminishing marginal utility is that the consumption should be continuous. For example, to hold the law of diminishing marginal utility a consumer should consume ice-creams continuously at a particular point of time.

Law of Diminishing Marginal utility is applicable to _________.

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

  1. Intermediate products

  2. Capital goods

  3. Consumer goods

  4. Raw materials

Show answer
Correct Option: C
Explanation:

Law of diminishing marginal utility is applicable to the goods which are consumed by the consumers. The law states that as the consumption of a good increases, the marginal utility tends to decline as the consumer is willing to sacrifice much lesser amount of one good in order to consume one additional unit of another good.

Identify which of the following statement is correct and which is incorrect.
A. The marginal utility of a good increase, if the want of the consumer is intensified by consuming a very small quantity of it such as a very little quantity of water given to a very thirsty person.

B. The law of diminishing marginal utility states that as the stock of a commodity decreases 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. A correct, B correct

  2. A correct, B incorrect

  3. A incorrect, B incorrect

  4. A incorrect, B correct

Show answer
Correct Option: B
Explanation:
A)If the want of the consumer gets intensified or increased by consuming a very small quantity then the marginal utility which will be derived from the another additional unit of that commodity will increase.For example, if a very less amount of water is given to a thirsty person, then the marginal utility will rise by consuming the second glass of water as the his want gets intensified even after consuming the first glass of water.

B)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 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.