What is meant by marginal utility of money?
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MICROECONOMICS CH : 3 CONSUMER'S EQUILIBRIUM UTILITY ANALYSIS question types
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1 Marks Question
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6 Q→05M.C.Q (1 Marks)
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MICROECONOMICS CH : 3 CONSUMER'S EQUILIBRIUM UTILITY ANALYSIS questions
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What is the meaning of consumer's equilibrium?
State the law of diminishing marginal utility.
Define marginal utility.
Define total utility.
Given below is the utility schedule of a consumer for commodity-X. The price of the commodity is ₹ 6 per unit. How many units should the consumer purchase to maximise satisfaction? (Assume that utility is expressed in utils and 1 util = ₹ 1). Give reasons for your answer.
| Consumption (Units) | Total Utility (Utils) | Marginal Utility (Utils) |
| 1 | 10 | 10 |
| 2 | 18 | 8 |
| 3 | 25 | 7 |
| 4 | 31 | 6 |
| 5 | 34 | 3 |
| 6 | 34 | 0 |
Mr. X consumes two commodities A and B whose prices are ₹6 and ₹8 per unit respectively. Does the Mr. X strikes his equilibrium when he is getting marginal utility of A equal to 7 and. that of B also equal to 7?
Marginal utility schedule for Good-X and Good-Y is given in the following table. Assuming price of X is ₹ 1, and price of Y is ₹ 1 and money income of the consumer is ₹ 13. Find the optimum combination of Good-X and Good-Y for maximising consumer's utility.
View full solution →| Q | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| $MU _{ x }$ (Utils) | 28 | 24 | 21 | 20 | 16 | 13 | 9 | 5 | 3 | 1 |
| $MU _{ Y }$ (Utils) | 32 | 29 | 27 | 23 | 20 | 18 | 17 | 16 | 12 | 9 |
On the consumption of 10 units of a commodity, a consumer finds that $MU _{ X }$ has exceeded the marginal utility of money. Should he reduce the consumption of X so that he strikes an equilibrium. Give reason in support of your answer.
View full solution →A consumer gets 50 utils of utility from the consumption of Ist unit of commodity-X. On the assumption that for every additional unit of X, he loses 10 utils of utility, how much unit (s) of X will he consume if, it was available to him at price of ₹5 per unit, and his marginal utility of money = 10?
Summit has ₹90 with him. He intends to purchase goods X and Y with his money. The market price of X and Y per unit is ₹10. The marginal utility schedule of goods X and Y is given below. Find out how many units of X and Y should Summit purchase so that he gets maximum satisfaction.
| Units of Commodity | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| MU of X | 80 | 72 | 64 | 56 | 48 | 40 | 32 | 24 | 16 | 8 |
| MU of Y | 40 | 32 | 24 | 20 | 16 | 12 | 8 | 4 | 0 | 0 |
Suppose, price of commodity-Y $\left( P _{ Y }\right)$ is ₹10 per unit. Also, assume that marginal utility of money $\left( MU _{ M }\right)$ is 8 (and constant). Using the following marginal utility schedule of the consumer, find out equilibrium level of consumption and total expenditure on commodity-Y.
View full solution →| Units Consumed | 1 | 2 | 3 | 4 | 5 | 6 |
| Marginal Utility | 170 | 130 | 110 | 80 | 30 | 0 |
Following is the total utility schedule of Mr. X:
(i) Derive MU schedule.
(ii) Find out the level of consumption at which Mr. X reaches the saturation point.
(iii) How many units should the consumer purchase to maximise satisfaction when the price of the commodity is ₹5? (Assume that utility is expressed in utils and 1 util = ₹2). Give reasons for your answer.
View full solution →| Units of Commodity-X | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| $TU _{ x }$ (Utils) | 20 | 37 | 51 | 61 | 66 | 66 | 64 |
(ii) Find out the level of consumption at which Mr. X reaches the saturation point.
(iii) How many units should the consumer purchase to maximise satisfaction when the price of the commodity is ₹5? (Assume that utility is expressed in utils and 1 util = ₹2). Give reasons for your answer.
When the consumer is in equilibrium, MU of commodity-X is 45 and price of commodity-X is ₹9. Calculate the marginal utility of money. (Assuming marginal utility of money for the consumer is constant in equilibrium.)
Calculate total utility for the various units of commodity-X, given the following information
View full solution →| Units of Commodity X | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| $MU _{ x }$ (Utils) | 20 | 16 | 12 | 9 | 8 | 3 | 0 | -5 |
Read the following hypothetical information carefully and answer the questions 1-6 on the basis of the same:
1. At 2nd unit consumed, marginal utility is _________ .
(a) 6 (b) 7 (c) 8 (d) 28
2. At 4th unit consumed, total utility is __________ .
(a) 24 (b) 31 (c) 32 (d) 13
3. Which of the following statements is correct?
(a) Total utility increases when marginal utility is positive
(b) Total utility is maximum when marginal utility is also maximum
(c) Total utility diminishes only when marginal utility is negative
(d) Both (a) and (c)
4. Identify the correct formula to calculate Marginal Utility.
(a) $M U=\Sigma T U$ (b) $M U=T U_n-T U_{n-1}$ (c) $M U=T U_n-T U_{n+1}$ (d) None of these
5. Read the following statements carefully and choose the correct alternative among those given below:
Statement 1: Total utility is the summation of marginal utilities.
Statement 2: Marginal utility curve slopes upward from left to right.
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
6. At 6th unit consumed, total utility is __________ .
(a) 0 (b) 11.1 (c) 31 (d) 34.
View full solution →| Units Consumed | Total Utility | Marginal Utility |
| 1 | 10 | 10 |
| 2 | 18 | - |
| 3 | 25 | 7 |
| 4 | - | 6 |
| 5 | 34 | 3 |
| 6 | - | 0 |
(a) 6 (b) 7 (c) 8 (d) 28
2. At 4th unit consumed, total utility is __________ .
(a) 24 (b) 31 (c) 32 (d) 13
3. Which of the following statements is correct?
(a) Total utility increases when marginal utility is positive
(b) Total utility is maximum when marginal utility is also maximum
(c) Total utility diminishes only when marginal utility is negative
(d) Both (a) and (c)
4. Identify the correct formula to calculate Marginal Utility.
(a) $M U=\Sigma T U$ (b) $M U=T U_n-T U_{n-1}$ (c) $M U=T U_n-T U_{n+1}$ (d) None of these
5. Read the following statements carefully and choose the correct alternative among those given below:
Statement 1: Total utility is the summation of marginal utilities.
Statement 2: Marginal utility curve slopes upward from left to right.
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
6. At 6th unit consumed, total utility is __________ .
(a) 0 (b) 11.1 (c) 31 (d) 34.
Explain the conditions of consumer's equilibrium with the help of marginal utility analysis
A consumer consumes only two goods. Explain his equilibrium with the help of utility approach.
What do you understand by consumer's equilibrium? Explain consumer's equilibrium in case of a single commodity.
What do you understand by consumer's equilibrium? Give logical reasoning as to how he reaches his state of equilibrium.
| Units of Commodity-X | $M U_x$ |
| 1 | 20 |
| 2 | 18 |
| 3 | 16 |
| 4 | 10 |
| 5 | 0 |
| 6 | -5 |
On the basis of the above-mentioned information answer the following question:
Find the point of consumer's equilibrium when the price of commodity-X is ₹ 4 per unit, and marginal utility of money is 4.
- AConsumer equilibrium is struck when 2 units of commodity-X are consumed
- ✓Consumer equilibrium is struck when 3 units of commodity-X are consumed
- CConsumer equilibrium is struck when 4 units of commodity-X are consumed
- DConsumer equilibrium is struck when 5 units of commodity-X are consumed
Answer: B.
View full solution →
On the basis of the above diagram, state the level of consumption at which point of satiety lies.
- AAt 2nd unit of the commodity
- BAt 3rd unit of the commodity
- CAt 4th unit of the commodity
- ✓At 5th unit of the commodity
Answer: D.
View full solution →Identify the correct sequence of alternatives given in Column II by matching them with respective items in Column I:
| Column I | Column II |
| A. Consumer equilibrium | (i) When consumption of an additional unit leads to dissatisfaction |
| B. TU | $\frac{ MU _{ X }}{ P _{ X }}=\frac{ MU _{ Y }}{ P _{ Y }}= MU _{ M }$ |
| C. MU curve | (iii) Slopes downwards from left to right |
| D. Negative MU | (iv) ΣΜU |
- AA-(iv), B-(iii), C-(i), D-(ii)
- ✓(b) A-(ii), B-(iv), C-(iii), D-(i)
- CA-(iii), B-(i), C-(iv), D-(ii)
- DA-(ii), B-(iii), C-(iv), D-(i)
Answer: B.
View full solution →The consumer is in equilibrium and is consuming commodity-X only. The marginal utility from last unit consumed of commodity X = 50 utils and $MU _{ M }=10$.Find the price of the commodity-X.
- ✓₹ 5
- B₹ 40
- C₹ 10
- D₹ 4
Answer: A.
View full solution →With the increase in consumption by one unit of the commodity, TU increases from 150 to 180, then marginal utility is:
- A50
- B1.2
- ✓30
- D0.833
Answer: C.
View full solution →A consumer is in equilibrium and buys commodities X and Y. When price of X falls, he starts buying more of X than Y.
A situation when $\frac{ P _{ X }}{ P _{ Y }}>\frac{ MU _{ X }}{ MU _{ Y }}$ is better than when $\frac{ P _X}{ P _{ Y }}=\frac{M U_X}{M U_Y}$.
View full solution →If $\frac{M U_X}{P_X}>\frac{M U_Y}{P_Y}$, the consumer should buy more of commodity-Y and less of commodity-X.
View full solution →Unless $MU _{ M }$is assumed to be constant, equilibrium of the consumer cannot be specified.
View full solution →A consumer strikes his equilibrium when $M U _{ X }= MU _{ Y }= MU _{ M }$,in case of two commodities, and when $P _{ X }$ and $P _{ Y }$ are not equal.
View full solution →Marginal utility is _________ when total utility diminishes. (positive/negative)
Total utility_________ when marginal utility is decreasing but positive. (increases/decreases)
$\frac{M U_X}{M U_Y}<\frac{?}{P_Y} (Px/PY)$
View full solution →Total utility is maximum when marginal utility is _________ (zero/maximum)
When consumption of a commodity increases, then marginal utility _________ (diminishes/increases)
Assertion (A): The point where MUx (in terms of rupee) is equal to Px is called point of consumer equilibrium.
Reason (R) : At the point of consumer equilibrium, satisfaction (in terms of MU₂) is greater than sacrifice (in terms of Px).
Reason (R) : At the point of consumer equilibrium, satisfaction (in terms of MU₂) is greater than sacrifice (in terms of Px).
- A(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
- B(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
- ✓(c) Assertion (A) is true but Reason (R) is false
- D(d) Assertion (A) is false but Reason (R) is true
Answer: C.
View full solution →Assertion (A): TU increases as long as MU is positive.
Reason (R) MU is the slope of TU.
Reason (R) MU is the slope of TU.
- ✓(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
- B(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
- C(c) Assertion (A) is true but Reason (R) is false
- D(d) Assertion (A) is false but Reason (R) is true
Answer: A.
View full solution →In the following questions (1-2), two statements are given. Read the statements carefully and choose the correct alternative among those given below:
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Statement 1: Utility of every commodity can be measured in terms of ordinal numbers.
Statement 2: Marginal utility of money is a measuring rod for a rupee worth of satisfaction.
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Statement 1: Utility of every commodity can be measured in terms of ordinal numbers.
Statement 2: Marginal utility of money is a measuring rod for a rupee worth of satisfaction.
In the following questions (1-2), two statements are given. Read the statements carefully and choose the correct alternative among those given below:
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Statement 1: Total utility diminishes only when marginal utility is negative.
Statement 2: Utility refers to want-satisfying power of a commodity.
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Statement 1: Total utility diminishes only when marginal utility is negative.
Statement 2: Utility refers to want-satisfying power of a commodity.
Ice creams sell for ₹ 30. Lakshmi who loves ice cream, has already eaten 3. Her MU from eating 3 ice creams is 90. Suppose further that, for her, the MU of one rupee is 3. Should she eat more ice cream or should she stop?
Starting from the initial situation of consumer's equilibrium, suppose that the marginal utility of a rupee increases. Will it increase or decrease the quantity demanded of a product?
State the condition of consumer's equilibrium.
Why should a consumer purchase more of a commodity when MU must decline as consumption of the commodity increases?
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