Microeconomics: Theory of Consumer Behaviour

Topics in this chapter

• Cardinal Utility Analysis
• Consumer Equilibrium
• Indifference Curve Analysis
• Budget Constraints
• Price and Income Effects
• Demand and Goods Classification

Cheat sheet

Practice questions

1. Question 1Q-9FF875

   When marginal utility of a commodity is positive but continuously diminishing, total utility generally:

   1. A.Falls at an increasing rate
   2. B.Increases at a diminishing rate
   3. C.Remains constant
   4. D.Becomes zero immediately
   See the answer and solution
2. Question 2Q-565D0C

   A consumer has an income of ₹120. The prices of goods X and Y are ₹20 and ₹10 per unit respectively. Which equation represents the consumer's budget line?

   1. A.20X + 10Y = 120
   2. B.10X + 20Y = 120
   3. C.20X + 10Y = 12
   4. D.X + Y = 120
   See the answer and solution
3. Question 3Q-610512

   For an interior consumer equilibrium under the indifference curve approach, which condition must hold, assuming the indifference curve is convex to the origin?

   1. A.MRS of X for Y is greater than the price ratio Px/Py
   2. B.MRS of X for Y is less than the price ratio Px/Py
   3. C.MRS of X for Y equals the price ratio Px/Py
   4. D.The consumer must consume equal quantities of X and Y
   See the answer and solution
4. Question 4Q-C88064

   Explain how a fall in the price of a commodity affects a consumer's budget set, assuming income and the price of the other commodity remain unchanged.

   See the answer and solution
5. Question 5Q-FA7156

   A consumer has a marginal utility of money of ₹2 per utils. If the marginal utility of a commodity is 10 utils and its price is ₹4, what does the consumer's utility-maximising condition indicate?

   1. A.The commodity is being purchased in the utility-maximising quantity because its marginal utility equals its price.
   2. B.The commodity should be purchased in greater quantity because its marginal utility per rupee exceeds the marginal utility of money.
   3. C.The commodity should be purchased in smaller quantity because its price exceeds its marginal utility.
   4. D.No conclusion can be drawn because marginal utility cannot be compared with price.
   See the answer and solution