CHAPTER-2 – Consumer’s Equilibrium
Q1
Solution:
The sum total of all the benefits or satisfaction a consumer gets
after consuming a particular good is termed as the Total Utility. In
other words, it is the quantitative measure of all the satisfaction and
happiness a consumer gets after consuming any goods or services.
This term is mainly used in analyzing the behavior of the consumer
for future business.
Q2
Solution:
Total Utility: It refer to total measured amount of satisfaction
recorded for consuming complete quantity given.
Marginal Utility: It refers to added measured of satisfaction at every
new quantity consumed.
Marginal utility of ice cream
1 2 3 4 5 6
25
20 20
Marginal utility of ice cream
15 16
10 10 Marginal utility of ice cream
5
4 Zero MU
0 0
-5
-6 Negative MU
-10 Units of ice cream
Class XII www.vedantu.com SG Solutions
(Micro Economics)
Total utility from ice cream
60 (5, 50) Maximum
Total Utility
50 46
Total Utility from ice cream
44
40 36
30
20 Total utility from ice cream
20
10
0
0 2 4 6 8
Units of ice cream
Q3
Solution:
Law of Diminishing Utility: According to it, as we consume more
benefit or satisfaction or utility of a product, then marginal utility
from each additional unit declines.
Q4
Solution:
Law of diminishing Utility assumes the following assumptions:
1. Perfect knowledge: Consumer should be knowledgeable and
logical.
2. Rational consumer: Consumer’s preference should not change
while consuming utilities
3. Independent utilities: Commodities consumed should be
identical and independent of each other.
4. Fixed prices and income: There should not be difference
between prices of commodities and income from them.
Class XII www.vedantu.com SG Solutions
(Micro Economics)
Q5
Solution:
An indifference curve is a curve that shows different combination
of two different commodities which give same level of satisfaction
to a consumer.
Sample Indifference Schedule
Combination Commodity A Commodity B
1 1 18
2 2 13
3 3 9
4 4 6
5 5 4
6 6 3
The curve is the chart below is the indifference curve
Goods X (x-axis) and Y (y-axis)
20
18 18
16
14
13
12
10
9
8
6 6
4 4
3
2
0
0 1 2 3 4 5 6 7
Q6
Class XII www.vedantu.com SG Solutions
(Micro Economics)
Solution:
Full form of MRS is Marginal Rate of Substitution.
MRS is defined as the quantity of one amount of good a consumer
give up, in order to get the other good while maintaining the total
utility constant.
Q7
Solution:
Three assumption of indifference curve are given below:
1. Two goods (A and B) are considered
2. Consumers have complete knowledge about prices of the
goods.
3. Consumers acts rationally to maximize the satisfaction related
to the goods they purchase.
Class XII www.vedantu.com SG Solutions
(Micro Economics)
