Consumers Equilibrium and Demand Test - 5

Saturation Point: The point where the desire to consume the same product anymore becomes zero.

hence additional consumption will not give any satisfaction to consumer,MU = 0

TU, First rises till MU is positive, then reaches its maximum when MU=0,then starts falling when MU becomes negitive.

The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. This is absurd and impossible.

elasticity is diifferent from slope, slope will be same but not elasticity.

Flatter curve will have more elasticity, steeper will be less elastic.

slope is given by change in y axis / change in X axis.

price elasticity of demand = % change in quantity demanded / % change in price,

which tends to infinity in case of horizontal demand curve

MU is addition to TU,

so if MU is rising TU will rise with higher rate.

At point of tagency MRE=MRS.

The theory of consumer's surplus is based on the law of diminishing marginal utility. The law of diminishing marginal utility claims that as you consumer more of a commodity, the marginal utility derived from it decreases eventually

The ordinal utility theory or the indifference curve analysis is based on four main assumptions.

1.Rational behavior of the consumer.

2.Utility is ordinal.

3.Diminishing marginal rate of substitution.

4.Consistency in choice.

Substitute goods are those goods that can satisfy the same necessity, they can be used for the same end.

Approch is for an individual consumer, market has nothing to do with it.

The law of diminishing marginal utility states that marginal utility declines as consumption increases. Because demand price depends on the marginal utility obtained from a good, price also declines as consumption increases, meaning price and quantity demanded are inversely related, which is the law of demand.

First rises till MU is positive, then reaches its maximum when MU=0,then starts falling when MU becomes negitive.

1.MU is the rate of change of TU.

2.When the MU decreases, TU increases at decreasing rate.

3.When MU becomes zero, TU is maximum. It is a saturation point.

4.When MU becomes negative, TU declines

flatter the curve more the elasticity,steeper the curve less the elasticity.

Demand for medicine is in-elastic as it falls in category of a necessity good.

An inferior good is a type of good for which demand declines as the level of income increases.

Any factor other than price shifts demand curve.

Increase in demand is depicted through rightward shift,due to increase in income demand of a good increases.

It is only option of non-necessity/mandatory good among given options.

An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

The situation where the equilibrium level of real GDP falls short of potential GDP is known as recessionary gap.

A recessionary gap, or contractionary gap, is a macroeconomic term used when a country's real gross domestic product (GDP) is lower than its GDP at full employment. A recessionary gap, or contractionary gap, occurs when a country's real GDP is lower than its GDP at full employment. Recessionary gaps close when real wages return to equilibrium, and the quantity of labor demanded equals the quantity supplied. Policymakers may choose to implement a stabilization policy to close the recessionary gap and increase real GDP. Essentially, a recessionary gap refers to the difference between actual and potential production in an economy, with the actual being lower than the potential, which puts downward pressure on prices in the long run. These gaps are evident during an economic downturn and are associated with higher unemployment numbers.

Hence, the correct option is (A).

Consumer substitutes one good for other along IC in order to keep satisfaction level constant.

slope of price line is given by ratio of the prices of two goods, i.e. Px/Py, which is constant.

Movements along a demand curve happen only when the price of the good changes.