B.

TRUE OR FALSE

1. Any consumption beyond the point of satiety leads to disutility.

Ans. [True] Point of satiety shows the stage of maximum satisfaction. Any consumption
beyond this point leads

to disutility as MU becomes negative.

2. Different points on an indifference curve represent different levels of satisfaction.

Ans. [False] All points on the indifference curve show same level of satisfaction.

3. An indifference curve is convex to the origin because of DMU.

Ans. [False] Indifference curve is convex to the origin because of the law of diminishing
marginal rate of

substitution.

4. Marginal rate of substitution indicates the slope of budget line.

Ans. [False] Price ratio measures the slope of budget line.

5. Marginal rate of substitution remains same along the indifference curve.

Ans. [False] It diminishes along the indifference curve.

6. The bundles of budget set lie either on or below the budget line.

Ans. [True] Budget set include all the possible bundles which cost less than or equal to
consumer's money

income. Bundles costing less than income lie below the budget line and bundles costing
equal to income lie on

the budget line.

7. Two indifference curves intersect each other when they represent same level of
satisfaction.

Ans. [False] Two indifference curves never represent same level of satisfaction. So, they
can never intersect

each other.

8. Total utility is minimum when marginal utility is zero.

Ans. [False] Total utility is maximum when marginal utility is zero.

9. When the marginal utility starts falling, total utility also starts decreasing.

Ans. [False] Total utility starts decreasing only when marginal utility is negative.

1 o. Marginal utility can never be negative.

Ans. [False] When consumption increases beyond the point of satiety the marginal utility
becomes negative.

C. MULTIPLE CHOICE QUESTIONS

1. Want-satisfying power of a commodity is known as:

(a) productivity (b) satisfaction (c) utility (d) efficiency

2. Sum of utility from all the units consumed by a consumer is known as:

(a) marginal utility (b) total utility (c) maximum utility(d) diminishing utility

3. Utility of an additional unit consumed by a consumer is known as:

(a) average utility (b) marginal utility (c) diminishing (d) any of these

4. Get tendency of additional utility from additional unit of a goods is:

(a) increasing (b) remains constant (c) diminishing (d) all of these

5. When marginal utility is zero, total utility would be:

(a) minimum (b) maximum (c) zero (d) negative

6. When total utility diminishes, marginal utility has the tendency of:

(a) increasing (b) diminishing (c) negative (d) none of these

7. How marginal utility (MU) is calculated?

(a) TU/Q (b)MU/Q (c) Q/TU (d) Q/MU

8. What is formula for calculating MU?

(a) TUn + TUn+l (b) TUn + TUn-1 (c) TUn - TUn+l (d) TUn - TUn-1

9. Law of diminishing marginal utility is based on the assumption of:

(a) consumer is rational (b) each particular want can be satisfied

(c) marginal utility diminishes (d) all of these

10. A consumer consuming one commodity, will be in equilibrium, when he applies which
of following
formula:

(a) MPP = Price (b) TU = Price (c) MU = Price (d) AU = Price

11 . A consumer consumes two goods. He will be in equilibrium when:

(a) MUx = Px (b) MUx/Px = Py / MUy (c) MUx/Px = MUy Py (d) none of these

12. When marginal utility of a commodity is measured, added or subtracted, it is known as:

(a) cardinal utility (b) ordinal utility (c) initial utility (d) none of these

13. When marginal utility of two goods can be compared, it is knowQ as:

(a) cardinal utility (b) ordinal utility (c) objective utility (d) none of these

14. When we get equal satisfaction on all the points of a curve, it is known as:

(a) equal marginal utility curve (b) indifference curve

(c) marginal productivity curve (d) none of these

15. Indifference curve is also known as:

(a) iso-utility curve (b) iso-productivity curve (c) marginal utility curve (d) equal opportunity

curve

16. An indifference curve is always:

(a) concave to the origin (b) convex to the origin

(c) straight line downward sloping (d) any of these shape

17. An indifference curve has a ____ slope.

(a) downward (b) upward (c) parallel to X-axis (d) parallel to the Y-axis

18. Price line is alternatively known as:

(a) budget line (b) market offer curve (c) market opportunity curve (d) all of these

19. A price line has the tendency of:

(a) convex to the origin (b) concave to the origin

(c) straight line downward sloping (d) parallel to the Y-axis

20. A consumer is in equilibrium when an indifference curve is:

(a) equal to price line (b) tangent to price line

(c) tangent to price line in convex form (d) tangent to price line in concave form

Answer:

l. (c) 2. (b) 3. (b) 4. (c) 5. (b) 6. (c) 7. (a) 8. (d) 9.(b) 10. (c)11. (c) 12. (a) 13. (b) 14. (b) 15. (a)
16. (b) 17. (a) 18. (d) 19.(c) 20. (c)

D. ASSERTION-REASON TYPE

Read the following statements-Assertion (A) and Reason (R), and select the correct
alternative in each case:

(a) (A) is true, but (R) is false.

(b) (A) is false, but (R) is true.

(c) Both (A) and (R) are true and (R) is the correct explanation of (A).

(d) Both (Al and (R) are true but (R) is not the correct explanation of (A).

1. Assertion (A) :Indifference curve is convex to the origin

Reason (R) : Diminishing marginal rate of substitution.

2. Assertion (A) : Additional utility derived from the consumption of one more unit of
commodity is always

diminishing.

Reason (R): It happens because of decreasing intensity of desire.

3. Assertion (A): MU can never be nigative.

Reason (R): MU can become negative when TU falls with increase in consumption of a
commodity.

4. Assertion (A) : If a consumer consumes a goods with a time lag then the law of DMU does
not hold true.

Reason (R): Human wants are unlimited, as soon as one want gets satisfied another want
arises .

5. Assertion (A) : The slope of the budget line is represented by the price ratio.

Reason (R) : Budget line slopes downwards as more of one goods can be bought by
decreasing some units of the other goods.

Answer:
 1. (a) 2. (d) 3. (b) 4. (d) 5. (d)

Case study 1

We buy many goods and services to satisfy our wants. Using goods and services to satisfy
wants is called

consumption and the person who buys goods and services is called consumer. When a
consumer purchases any

goods or service, his main objective is to maximise the satisfaction. The way consumer
maximises his satisfaction

from spending his income on various goods and services is the subject matter of consumer
behaviour. There are

two approaches to study the consumer behaviour.

Answer the following questions based on the above paragraph:

1. Define the term 'consumption'.

2. Name two terms used to measure the consumer's equilibrium.

3. What do you mean by consumer equilibrium?

Ans. 1. Act of using g

oods and services to satisfy human wants is known as consumption.

2. Cardinal approach and ordinal approach.

3. Consumer's equilibrium take place at a point where he gets the maximum satisfaction.

Case study 2

Utility is known as want satisfying power of a commodity. Total utility is the total
satisfaction derived from consuming given number of units of a particular commodity. Total
utility increases at a diminishing rate. Marginal utility on the other hand is the additional
utility derived from consuming one more unit of a commodity. Marginal utility is always
diminishing, it goes into negative also. When marginal utility becomes zero, total utility is
maximum and constant but when marginal utility goes into negative, total utilities starts
falling. Law of DMU is based on the nature of MU only.

Answer the following questions based on the above paragraph:

1. Draw the graph of TU and MU.

2. What do we call the point where TU is maximum and MU is zero?

3. Explain the reason behind diminishing marginal utility.

4. Wis increasing at a diminishing rate'. What do you mean by 'rate' in this sentence?

ans1 .

2. Point of satiety or saturation point.

3. Intensity of desire. As we consume a commodity the intensity of desire to consume it

decreases and thus the MU

diminishes.

4. Marginal Utility.