Tag: laws in economics

Questions Related to laws in economics

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. 

Utility may be affected by the presence or absence of.

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

  1. Substitute Goods

  2. Complementary Goods

  3. Both (a) and (b)

  4. Neither (a) and (b)

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Correct Option: C

The doctrine of consumer 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. Indifference curve analysis

  2. Revealed preference theory

  3. Law of substitution

  4. The law of diminishing marginal utility

Show answer
Correct Option: D
Explanation:

The doctrine (principle) of consumer surplus is based on the law of DMU.

A rational consumer is a person who ____________.

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

  1. behaves at all times, other things being equal, in a judicious manner.

  2. is influenced by persuasive advertising

  3. knows the price of goods in different market and buys the cheapest.

  4. has perfect knowledge of the market.

Show answer
Correct Option: A
Explanation:

A rational consumer is considered to be that person who makes rational consumption decisions.

 In other words, the consumer who makes his choices after considering all the other alternative goods (and services) available in the market is called a rational consumer.

In law of diminishing marginal utility, rationality means __________.

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

  1. consumer is rational

  2. producer is rational

  3. firm is rational

  4. seller is rational

Show answer
Correct Option: A
Explanation:

In law of diminishing marginal utility, rationality of consumers refer to the situation when consumers take decisions with reason and logic and without any bias.