Economics · Unit 4
Consumer Behavior and Utility
Exam-focused notes for Consumer Behavior and Utility (Economics, ECO155): what the TU syllabus asks and how it has actually been tested, with 13 solved past questions from this unit.
What this unit covers
- Law of diminishing marginal utility
- Ordinal utility approach
- Indifference curve definition and properties
- Marginal rate of substitution and diminishing MRS
- Budget line and consumer equilibrium
- Price consumption curve and Giffen goods
- Derivation of demand curve from price consumption curve
Indifference curve definition and properties
Explain the concept of indifference curve. Derive the consumer’s equilibrium using indifference curves and budget line with a diagram.[10]
An indifference curve is a locus of points representing different combinations of two commodities that yield the same level of satisfaction or utility to a consumer. In other words, all points on an indifference curve are equally preferred by the consumer. ...
Full solved answer →Define indifference curve. How a consumer attains equilibrium under indifference curve analysis? Explain.[10]
An indifference curve is a graphical representation showing all possible combinations of two commodities that yield the same level of satisfaction or utility to a consumer. In other words, it is a curve that connects all points representing different bundle...
Full solved answer →Explain the various properties of the indifference curve. [5]
An indifference curve represents all combinations of two goods that provide a consumer with the same level of satisfaction or utility. The following are its key properties: - Indifference curves slope downward from left to right - As the quantity of one goo...
Full solved answer →What is indifference curve? What are its properties? Explain.[10]
An indifference curve is a graphical representation that shows all possible combinations of two goods or commodities that provide a consumer with the same level of satisfaction or utility. In other words, it represents different bundles of goods among which...
Full solved answer →What is indifference curve? Explain the consumer's equilibrium under ordinal utility approach.[10]
An indifference curve is a graphical representation showing all combinations of two goods that provide a consumer with the same level of satisfaction or utility. In other words, it represents different bundles of goods among which a consumer is indifferent ...
Full solved answer →What is indifference curve? What are its properties?[10]
An indifference curve is a graphical representation showing all possible combinations of two goods or commodities that provide a consumer with the same level of satisfaction or utility. In other words, it represents different bundles of goods among which a ...
Full solved answer →What is indifference curve? How can a consumer will attain an equilibrium under indifference curve approach?[10]
An indifference curve is a graphical representation showing all possible combinations of two goods that provide a consumer with the same level of satisfaction or utility. Key characteristics: - It represents different bundles of goods (X and Y) that yield e...
Full solved answer →Law of diminishing marginal utility
Define the law of diminishing marginal utility. Explain its significance with an example. [5]
The Law of Diminishing Marginal Utility states that as a consumer consumes successive units of a commodity, the additional satisfaction (marginal utility) derived from each additional unit decreases, assuming all other factors remain constant and the consum...
Full solved answer →Discuss the law of diminishing marginal utility with table and figure. [5]
The Law of Diminishing Marginal Utility states that as a consumer consumes successive units of a commodity, the satisfaction (utility) derived from each additional unit decreases, while total utility continues to increase at a decreasing rate, assuming all ...
Full solved answer →Derivation of demand curve from price consumption curve
Derive the demand curve for the given goods with the help of price consumption curve. [5]
Price Consumption Curve (PCC): The locus of points showing the optimal combinations of two goods that a consumer purchases at different price levels of one good, while holding income and the price of the other good constant. Demand Curve: A graphical repres...
Full solved answer →Price consumption curve and Giffen goods
Define price consumption curve (PCC). Derive the price consumption curve for Giffen goods with the help of indifference curve approach. [5]
The Price Consumption Curve (PCC) is the locus of points representing the optimal consumption bundles of a consumer as the price of one commodity changes while the price of the other commodity and the consumer's money income remain constant. It traces the c...
Full solved answer →Budget line and consumer equilibrium
Let us suppose a consumer has fixed income of Rs.2000. He selects two goods X and Y for consumption having prices with Rs.400 and Rs.200 respectively. a. Derive budget line. b. Show his equilibrium point when he allocates entire budget equally on two goods. [5]
- Fixed Income, $M = Rs.\ 2000$ - Price of Good X, $Px = Rs.\ 400$ - Price of Good Y, $Py = Rs.\ 200$ - Condition (part b): entire budget allocated equally on X and Y The budget line shows all combinations of X and Y purchasable with the full income: $$M = ...
Full solved answer →Marginal rate of substitution and diminishing MRS
What is marginal rate of substitution (MRS)? Write the reason to diminishing MRS. [5]
The Marginal Rate of Substitution (MRS) is the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction or utility. In other words, it measures how many units of one commodity a consumer will gi...
Full solved answer →Make Unit 4 stick
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