MP Board Class 12th Economics Important Questions Unit 2 Consumer Behavior and Demand solutions with pdf file.
Table of Contents
Micro Economics Consumer Behavior and Demand Important Questions
Micro Economics Consumer Behavior and Demand Objective Type Questions
Question 1. Choose the correct answers:
Question 1. Consumer is in equilibrium when:
(a) MUx = PUx
(b) MUx> PUx
(c) MUx < Px
(d) MUx ÷ Px
(a) MUx = PUx
Question 2. Marshall has given the law of Equimarginal utility related:
(a) Related to goods
(b) Related to money
(c) In relation to both
(d) None of these.
(a) Related to goods
Question 3. How many tremendous curves can touch the budget line:
(d) Depends on the basis of indifference maps.
Question 4. Indifference curves were first introduced by the English economist in 1881 by:
(a) Edge worth
(a) Edge worth
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Question 5. Any statement about the demand of an object is considered complete when it is mentioned in the following:
(a) Price of good
(b) Demand of good
(c) Time period
(d) All of the above.
(d) All of the above.
Question 6. If price of goods ‘X’ falls leading to increase in demand of goods ‘ Y’ then both the goods are:
(a) Substitute goods
(b) Complementary goods
(c) Not related
(b) Complementary goods
Question 7. According to total outlay method, the demand of a good is sinelastic when:
(a) Price will fall with the increase in amount spent
(b) When price of good decreases and money spent decreases
(c) Expenditure remains the same, even if price falls
(d) Expenditure decreases with the increase in price.
Answer: (b) When price of good decreases and money spent decreases
Question 2. Fill in the blanks:
- Consumer is a …………. human being.
- If the price of substitute goods increases then the demand curve shifts to the ………….
- …………. propounded the law of Diminishing Returns.
- According to Marshall utility can be measured in terms of ………….
- An indifference curve gives …………. level of satisfaction to the consumers.
- Car and Petrol are goods ………….
- There is …………. relation between price and demand.
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Question 3. State true or false:
- Utility is an intensive assumption.
- The proportion of the cost of two goods measures the slope of budget line.
- Demand curve is generally negative sloped.
- Budget set is a collection of all bundles that a consumer purchases from their income at market prices.
- The elasticity of the demand of the object and the expenditure on the object is closely related.
Question 4. Match the following:
- Inelastic (a) utility analysis
- Substitute goods (b) Demand of Necessary or Essential goods
- Marshall (c) Gossen’s second law
- Indifference curve (d) Cross demand
- Law of equi marginal utility (e) Does not cut each ether.
Question 5. Answer the following in one word / sentence:
- Which curve is convex to the origin?
- After which stage marginal utility and Total utility starts decreasing?
- The point where a consumer derives maximum satisfaction is known as?
- The elasticity of demand of luxurious goods is.
- What is the demand for means of productions?
- Indifference curve
- At zero point
- Consumer’s equilibrium
- Highly elastic
- Derived demand.
Consumer Behavior and Demand Very Short Answer Type Questions
Question 1. What is the law of demand?
Answer: The law of demand states that other things remaining the same, quantity demanded increases with the fall in price and quantity demanded decreases with rise in price.
Question 2. What are complementary goods?
Answer: Those goods which are jointly required to satisfy a particular want are known as complementary goods, e.g., bread and butter, car and petrol, pen and ink. These are also known as joint demand.
Question 3. What is elasticity of demand?
Answer: When we measure the proportionate change in the quantity demanded of a commodity due to change in its price, is known as elasticity of demand.
Question 4. What do you mean by Relatively elastic demand?
Answer: Demand is said to be relatively elastic when percentage change in demand is greater than percentage change in price.
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Question 5. What is perfectly inelastic demand?
Answer: The change of price does not affect the demand of certain commodities. The demand for these commodities remain almost constant. The demand of these commodities are known as perfectly inelastic demand (Ep = 0).
Question 6. Write the differences between the demand and want
Answer: Differences between the Demand and Want:
- Demand is created by want.
- Demand goes on changing.
- Desire gives rise to want.
- Wants are more or less permanent.
Question 7. What is cross elasticity of demand?
Answer: Cross elasticity of Demand :
Cross elasticity of demand refers to a change in demand for a goods as a result of change in the price of another goods. Following formula for the cross elasticity of demand :
Cross elasticity of demand arises in case of interrelated goods such as substitutes and complementary goods.
Question 8. What are substitute goods?
Answer: Commodities which can be used in place of other goods are known as substitute goods. Fall in price of one commodity leads to rise in demand for other commodity.
Example : Tea and coffee, complain and bournvita.
Question 9. What do you mean by consumer’s equilibrium?
Answer: It refers to a situation under which a consumer spends his given income on purchase of a commodity in such a way which gives him maximum satisfaction and there is no tendency to change.
Question 10. What is the effect of increase or decrease in the level of income on elasticity of demand?
Answer: With the increase in income demand increases and with the decrease in income demand falls.
Question 11. What do you mean by the budget set of a consumer?
Answer: The budget set is the collection of all bundles of goods that a consumer can buy with his income at a prevailing market price.
Question 12. What is budget line?
Answer: The budget line represents all bundles which cost the consumers his entire income. The budget line is negatively sloping. If the consumer wants to consume an extra unit of goods 1, he will have to give up some amount of goods 2.
Question 13. What do you mean by indifference curve?
Answer: An indifference curve is the curve which represents all the combinations of two goods which gives the same level of satisfaction to a consumer.
Question 14. What do you mean by market demand curve?
Answer: Market demand curve represents the total of quantities of a commodity demanded by all the consumers in the market at different prices.
Question 15. What do you mean by zero elasticity of demand or perfectly inelastic demand?
Answer: A perfectly inelastic demand is one in which a change in a price causes no change in the quantity demanded.
Question 16. What do you mean by market demand?
Answer: Market demand means the total quantity of a good that all its buyers are willing to purchase at different prices over a given period of time.
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Question 17. What do you mean by Giffen goods?
What do you mean by inferior goods?
Answer: Giffen goods may be defined as those goods whose price effect is positive and income effect is negative. In it the demand falls with the fall in price and rises with an increase in price.
Question 18. What do you mean by price effect?
Answer: When the price of a commodity falls the real income of the consumer goes up and thus demand of the commodity increases. This effect is called the price effect.
Consumer Behavior and Demand Short Answer Type Questions
Question 1. What do you mean by utility? Give definition of it.
- The power or capacity which satisfies human wants is called utility.
- According to Prof. Waugh, “Utility is the capacity to satisfy human wants”.
Question 2. Explain the types of utility.
There are three types of utility:
- Total utility
- Marginal utility
- Average utility.
1. Total utility:
When a consumer uses more than one unit of a commodity, the sum total of the utility derived from all the units is called total utility. In other words, the utility derived from all the units of a commodity is called total utility.
2. Marginal utility:
The utility obtained from the last unit of a commodity is called marginal utility.“The marginal utility is the utility derived from the last unit of commodity consumed”.
3. Average utility:
When total utility of an article is divided with the total units of an article. The sum received is called average utility.
Question 3. Write the assumptions of consumer’s equilibrium.
Answer: Following are the assumptions of the consumer’s equilibrium:
- Maximum satisfaction :
The first assumption on of the consumer equilibrium is that consumer is a rational human being and by purchasing two goods, he can achieve maxi-mum satisfaction.
- No change in taste and habit of the consumer during analysis:
It is assumed that during the time of analysis of consumer equilibrium, there is no changes in taste, habit and liking of the consumer.
- Perfect competition:
There is perfect competition in the market from where he purchases his goods.
- Consumer has an indifference map:
Consumer has an indifference map showing his scale of preference for various combinations of the two goods (Apples and Mangoes). This scale of preference remains the same through out the analysis.
- No change in the price of the commodity:
Prices of the goods in the market are given and they are constant during consumer’s equilibrium. Each goods is homogeneous and divisible
- 6. Constant amount of money:
Consumer is given a constant amount of money to spend on the goods and if he does not spend on one good he must spend it on other.
Question 4. Write defects of law of diminishing marginal utility.
Answer: The law of diminishing marginal utility is not free from the defects.
1. Utility cannot be measured cardinally:
According to Marshall, utility analysis is based on the hypothesis that utility is cardinally measured in utils or units and that utility can be added and subtracted.
2. Marginal utility of money is not constant:
The utility analysis assumes the marginal utility of money to be constant. Critics point out that marginal utility of money never remain constant. So it may affect consumer’s preferences.
3. The law depends on the supply of the substitutes and complements:
The law does not depend upon the supply of the commodity a consumer consumes but also on its substitutes and complements. If the green coconuts are available in plenty the utility of sarabat will decrease rapidly.
The theory assumes that the consumer is rational. However, various factors such as advertisement and ignorance can influence the consumer’s decision.
5. In-applicability in case of indivisible goods:
The application of this law to an indivisible bulky commodity seems to be absurd because no one would normally but at a time more than one unit of goods like TV set, Scooter, House etc.
Question 5. Write the essential elements of demand.
Answer: Following are the essential elements of demand:
- Desire for goods: For demand desire of any good is essential. If a person does not have desire for anything, then it cannot be turned into demand.
- Sufficient means or Wealth to purchase:
A person should have sufficient wealth and means to get the goods, otherwise he/she cannot fulfill his wants.
- Eagerness to spend:
A person should be willing to use means or wealth to fulfill his demand. Otherwise it will remain only desire not the demand.
- Fixed price:
Demand is always expressed at a fixed price. If it is not expressed in terms of price, we cannot call it demand.
- Fixed Time:
Demand is always expressed at a particular time. In a specific time only quantity of good is demanded.
Question 5. Suppose a consumer can afford to buy 6 units of goods 1 and 8 units of goods 2 if he spends his entire income. The prices of two goods are ₹6 and ₹8 respectively. How much in the consumer’s income?
Price of good 1= ₹6.
Quantity of good = ₹6.
Price of good 2 = ₹8.
Quantity of good 2 = ₹8.
or C1 X1 + C1 X2 = I
or 6 x 6 + 8 x 8 = I
or 36 + 64 = 1
100 = 1
So, income of consumer.
Consumer Behavior and Demand Long Answer Type Questions
Question 1. Explain the factors affecting demand.
Answer: Following are the factors affecting demand:
When consumer’s income increases, he or she usually buys more goods which increases the demand.
- Price of substitute goods:
When the price of substitute goods increases, a consumer normally gives up at least some of its consumption and as a result the demand in-creases. (e.g., pineapple).
- Prices of complementary goods:
When the price of complementary good in-creases, a consumer normally gives up some of its consumption as a result demand decreases (e.g. sugar).
- Number of consumer:
When the number of consumers increases there are more people who buy the goods and as a result demand increases.
- Consumer’s taste:
When a consumer likes the goods more he or she buys it more and the demand increases.
Question 2. Explain the types of price elasticity of demand.
Explain the degree of price elasticity of demand.
Following are the types of price elasticity of demand:
1. Perfectly elastic demand:
Let us take one extreme case of elasticity of demand, when it is infinite or perfect elasticity of demand is infinity when even a negligible fall in the price of commodity leads to an infinite extension in the demand for it. Even when the price remains the same, the demand goes on changing.
2. Perfectly inelastic demand:
It means however great the rise or fall in the price of the commodity, its demand remains absolutely unchanged. In
other words, the elasticity of demand is zero. No amount of change in price induces a change in demand. In other words, the change in price does not at all affect the quantity demanded. It is a case of perfectly inelastic demand.
3. Unitary elastic demand:
Demand for a commodity will be said to be unitary elastic, if the percentage change in the quantity demanded equals to the percentage change in the price. In other words, when the demand changes in the same proportion as in the price of the commodity, the elasticity of demand is equal to one.
4. Inelastic demand or Less than unit elastic demand:
When a considerable change in price does not lead to much change in the demand, the demand is said to be less elastic or inelastic. Here, the elasticity of demand is said to be less than unity. The slope of demand curve is more inclined towards Y axis.
5. Elastic demand or More than unit elastic demand :
When a small change in price leads to a greater change in demand, the demand is said to be elastic or more elastic. Here, the elasticity of demand is said to be greater than unity. In this case, proportionate change in demand will be more than proportionate change in price.
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