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The document consists of exercises related to the law of diminishing marginal utility, covering concepts such as marginal utility, total utility, and consumer equilibrium. It includes multiple-choice questions with solutions, explanations of various utility concepts, and exceptions to the law of diminishing marginal utility. Key concepts discussed include the relationship between total utility and marginal utility, as well as subjective and relative utility in consumer behavior.

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4 views7 pages

Selfstudys Com File

The document consists of exercises related to the law of diminishing marginal utility, covering concepts such as marginal utility, total utility, and consumer equilibrium. It includes multiple-choice questions with solutions, explanations of various utility concepts, and exceptions to the law of diminishing marginal utility. Key concepts discussed include the relationship between total utility and marginal utility, as well as subjective and relative utility in consumer behavior.

Uploaded by

kadedinmishra34333
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Utility Analysis

EXERCISE [PAGE 16]

Exercise | Q 1.1 | Page 16

Complete the following statement by choosing the correct alternatives:


In the law of diminishing marginal utility, Alfred Marshall assumes that the marginal
utility of money ________.
1. increases
2. remains constant
3. decreases
4. rises and then falls
Solution: In the law of diminishing marginal utility, Alfred Marshall assumes that the
marginal utility of money remains constant.

Exercise | Q 1.2 | Page 16

Complete the following statement by choosing the correct alternatives:


As per the law of diminishing marginal utility, the measurement of utility is assumed to
be _____.
1. ordinal
2. cardinal
3. both ordinal and cardinal
4. none of the above
Solution: As per the law of diminishing marginal utility, the measurement of utility is
assumed to be cardinal.

Exercise | Q 1.3 | Page 16

Complete the following statement by choosing the correct alternatives:


MU of the commodity becomes negative when TU of a commodity is ______.
1. rising
2. constant
3. falling
4. zero
Solution: MU of the commodity becomes negative when TU of a commodity is falling.

Exercise | Q 1.4 | Page 16

Complete the following statement by choosing the correct alternatives:


Point of Satiety means _______
1. TU is rising and MU is falling
2. TU is falling and MU is negative
3. TU is maximum and MU is zero
4. MU is falling and TU is rising
Solution: Point of Satiety means TU is maximum and MU is zero.

Exercise | Q 1.5 | Page 16

Complete the following statement by choosing the correct alternatives:


When MU is falling, TU is _______.
1. rising
2. falling
3. not changing
4. maximum
Solution: When MU is falling, TU is rising.

Exercise | Q 2.1 | Page 16

Choose the correct option:


Column A Column B

1) Time utility a) Transport


2) Place utility b) Blood bank

3) Service utility c) Mobile phone

4) Knowledge utility d) Doctor

1. 1- d, 2 - b,3 - a, 4 - c
2. 1- b, 2 - a, 3 - d, 4 - c
3. 1 - a, 2 - b, 3 - c, 4 - d
4. 1 - b, 2 - c, 3 - d, 4 - a
Solution:
1- b, 2 - a, 3 - d, 4 - c
Column A Answer
1) Time utility b) Blood bank
2) Place utility a) Transport
3) Service utility d) Doctor
4) Knowledge utility c) Mobile phone

Exercise | Q 2.2 | Page 16

Choose the correct option:


Statement indicating consumer equilibrium:
a) MU is greater than price
b) MU is equal to price
c) MU is less than price
d) Price is less than one
1. a and b
2. a, b, c and d
3. a, b and c
4. only b
Solution: only b

Exercise | Q 3.1 | Page 16

Identify and explain the concept from the given illustration:


Salma purchased sweater for her father in winter season.
Solution: Relative concept
Explanation:
The utility is related to time and place. It varies from time to time and place to place.
For example:
woollen clothes have a greater utility in the winter.

Exercise | Q 3.2 | Page 16

Identify and explain the concept from the given illustration:


Nilesh purchased ornaments for his sister.
Solution: Subjective concept
Explanation:
It is a psychological concept. Utility differs from person to person. This is due to
differences in taste, preferences, likes, dislikes, nature, habits, profession.

Exercise | Q 3.3 | Page 16

Identify and explain the concept from the given illustration:


Kavita consumed five units of oranges one after the other.
Solution: Total utility or continuity
Explanation:
• Total utility (TU):
Total utility refers to the aggregate of utility derived by the consumer from all units of a
commodity consumed. It is an aggregate of utilities from all successive units of a
commodity consumed.
• continuity:
All units of commodity are consumed in quick succession without any lapse of time.
Exercise | Q 3.4 | Page 16

Identify and explain the concept from the given illustration:


Bhushan refused to eat fifth chapati after eating four chapatis.

Solution: Point of satiety

Explanation:

After reaching the point of satiety, a rational consumer should stop his consumption
since the maximum limit of satisfaction is reached and there is no addition to total utility
by any further increase in the stock of a commodity.

Exercise | Q 3.5 | Page 16

Identify and explain the concept from the given illustration:


Lalita satisfied her want of writing an essay by using pen and notebook.
Solution: Utility
Explanation:
The utility is the capacity of a commodity to satisfy human wants. In other words, utility
is the want satisfying power of a good.
Pen and notebook have utility to satisfy lalita's want an essay.
Thus the concept is utility.

Exercise | Q 4.1 | Page 16

Observe the given table and answer the question:


Units of a commodity TU units MU units

1 6 6
2 11 5
3 15 4
4 15 0
5 14 -1

Draw total utility curve and marginal utility curve.


Solution:

Exercise | Q 4.2 | Page 16

Observe the given table and answer the question:


Unit of a commodity TU unit MU unit
1 6 6
2 11 5
3 15 4
4 15 0
5 14 -1

When total utility is maximum marginal utility is _____.


Solution:

When total utility is maximum marginal utility is zero.

Exercise | Q 4.2 | Page 16

Observe the given table and answer the question:


Unit of a commodity TU unit MU unit
1 6 6
2 11 5
3 15 4
4 15 0
5 14 -1

When total utility falls, marginal utility becomes _____.


Solution:

When total utility falls, marginal utility becomes negative.

Exercise | Q 5 | Page 16

Answer in detail:
State and explain the law of Diminishing Marginal Utility and explain its exceptions.
Solution:
The law of diminishing marginal utility states that: “As a consumer consumes more and
more units of a commodity at succession, the Marginal Utility derived from the
consumption of each additional unit of the commodity falls.” The law of diminishing
marginal utility fails to operate in the following situations.
i. Hobbies - Hobbies such as jewellery collection by women, stamp collection, old
coins, antiques etc. violate the law.
ii. Misers - In case of misers, MU increases with the increase in the total amount of
money available to him, violating the law.
iii. Drunkards - The consumption of products like liquor and cigarettes violates the law.
As people tend to consume more of these products, the thirst utility for additional units is
greater. This is the reason for the violation.
iv. Power - The law also fails in case of acquiring power. An individual feels more
pleasure and derives higher level of utility, with a greater degree of power.
v. Listening to music - In the initial phase, listening to good music again and again
violates this law. However; after a certain limit, listening to the same music becomes
boring. As a result, the marginal utility tends to diminish. Thus, it is only in the initial
period when listening to good music violates the law of diminishing marginal utility.
vi. Reading - More and more reading gives an individual more pleasure and a higher
level of utility. This happens because, with more and more reading, an individual
acquires a greater degree of knowledge and higher education.
vii. Money - The law of diminishing marginal utility fails in case of earning money. Due
to the greed of earning money, people tend to earn as much money as they can

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