True/False

Question 11 Mark

A consumer is in equilibrium and buys commodities X and Y. When price of X falls, he starts buying more of X than Y.

Answer

True
When $P_X$ falls, $\frac{M U_X}{P_X}>\frac{M U_Y}{P_Y}$ implying that rupee worth of satisfaction is greater for commodity-X than commodity-Y. Accordingly, the consumer starts buying more of X than Y.

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Question 21 Mark

A situation when $\frac{ P _{ X }}{ P _{ Y }}>\frac{ MU _{ X }}{ MU _{ Y }}$ is better than when $\frac{ P _X}{ P _{ Y }}=\frac{M U_X}{M U_Y}$.

Answer

False
A consumer attains his equilibrium only when: $\frac{P_x}{P_y}-\frac{M U_x}{M U_y}$. It is a situation of maximum satisfaction. Any other situation will not yield maximum satisfaction.

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Question 31 Mark

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.

Answer

False
Consumer should buy more of commodity-X in place of commodity-Y. Only then the equality berween commodity-X and commodity-Y can be restored, and the equilibrium is attained.

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Question 41 Mark

Unless $MU _{ M }$is assumed to be constant, equilibrium of the consumer cannot be specified.

Answer

True
It must be assumed that marginal utility of money $\left( MU _{ M }\right)$ is constant. [Marginal utility of money refers to 'worth of a rupee' to a consumer. It is a measuring rod (of utility) which must remain constant.] In case it is not constant, money value of utility cannot be determined and the equilibrium equation $\left(M U_x=P_x\right)$ becomes meaningless.

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Question 51 Mark

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.

Answer

False
In case $P _{ X }$ and $P _{ X }$ are not equal, a consumer strikes his equilibrium when $\frac{M U_X}{P_X}=\frac{M U_Y}{P_T}=M U_M$.

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Question 61 Mark

A consumer strikes his equilibrium when: $\frac{M U_X}{P_X}=M U_M$ in case of two commodities.

Answer

False
A consumer strikes his equilibrium when $\frac{M U_X}{P_X}=M U_M$in case of single commodity only.

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Question 71 Mark

Consumer equilibrium can be determined only if the law of diminishing marginal utility holds good.

Answer

True.
Because, if the law of diminishing marginal utility does not hold good (or if MU tends to increase) why should the consumer ever stop or reduce the consumption of any commodity.

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Question 81 Mark

Measurement of utility in cardinal numbers is a serious limitation of utility analysis.

Answer

True.
It is assumed that consumer expresses utility in terms of cardinal numbers like 1, 2, 3 or 4. This is a serious limitation of utility analysis, because this assumption is wide away from the real life situation.

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Question 91 Mark

MU must diminish as more and more standard units of a commodity are continuously consumed.

Answer

True.
MU must diminish as more and more standard units of a commodity are continuously consumed. This is in accordance with the law of diminishing marginal utility.

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Question 101 Mark

Total utility starts diminishing when marginal utility begins to diminish.

Answer

False.
Total utility diminishes only when marginal utility is negative.

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Question 111 Mark

Total utility is maximum when marginal utility starts declining.

Answer

False.
When marginal utility starts declining, total utility increases at a diminishing rate. Total utility is maximum when marginal utility is zero.

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Question 121 Mark