Consumer Behaviour and Demand Test

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Consumer Behaviour and Demand Test - 10

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Question 1
1 / -0.25

The marginal product is above the average product curve, when the average product is:

A
None of above

B
Increasing

C
Decreasing

D
Becomes constant

Solution

Relationship between AP and MP is stated below:
(i) AP increases when MP is greater than AP.
(ii) AP is maximum when both MP and AP are equal.
(iii) AP decreases when MP is less than AP.
(iv) AP continues to be positive even when MP is zero or negative.
Question 2
1 / -0.25

What does one take on two axes while drawing an indifference curve?

A
Quantity along X axis and price along Y axis

B
Quantities of two goods

C
Price of the two goods

D
Quantity and price of a good

Solution

An indifference curve is a graph showing combination of two goods(quantity) that give the consumer equal satisfaction and utility. Each point on an indifference curveindicates that a consumer is indifferent between the two and all points give him the same utility.
Question 3
1 / -0.25

A consumer reaches equilibrium when?

A

B

C

D

Solution

A consumer is said to be in equilibrium when he feels that he “cannot change his condition either by earning more or by spending more or by changing the quantities of thing he buys ”.
A rational consumer will purchase a commodity up to the point where price of the commodity is equal to the marginal utility obtained from the thing.
In equilibrium, the marginal utilities of the different commodities purchased are proportional to their prices and these ratios of marginal utility to price must be equal to the common marginal utility of money.
Hence, MU of X/ Price of X = MU of Y/Price of Y
Question 4
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If the value of is more than , the consumer__________?

A
Will increase the consumption of good X and reduce good Y

B
Will reduce the consumption of good X and increase good Y

C
Will consume less of good X and good Y

D
Will consume more of good X and good Y

Solution

MU_X / P_X >MU_Y /P_Y . In this case, the consumer is getting more marginal utility per rupee in case of good X as compared to Y. Therefore, he will buy more of X and less of Y. This will lead to fall in MU_X and rise in MU_Y . The consumer will continue to buy more of X till MU_X /P_X = MU_Y /P_Y
Question 5
1 / -0.25

A demand function shows

A
Relationship between quantity desired and factors affecting it

B
Relationship between quantity demanded and income only

C
Relationship between quantity demanded and factors affecting it

D
Relationship between quantity demanded and price

Solution

The demand function shows the relationship between the quantity demanded and the price of the product .
Question 6
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The tangency between price line and indifference curve shows?

A
Marginal rate of substitution equals to income

B

C

D
MRS=P

Solution

At point of tangency,slope of the both IC and budget line is same,
i.e. MRS=MRE
Question 7
1 / -0.25

Consumer surplus is more in the case of______________?

A
Inferior goods

B
Necessities

C
Luxuries

D
Comforts

Solution

Consumer surplus is a measure of the welfare that people gain from consuming goods and servicesConsumer surplus is defined as the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay .
As per Alferd marshall ,CS can not be calculated for luxary goods, inferior goods and necessities.
Question 8
1 / -0.25

Marginal utility can be written in terms of symbol as ________?

A
MUn = TUn + TU n-1

B
Mun = TUn -TUn-1

C
MUn = TU n-1 - TUn

D
None of above
Question 9
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The value of elasticity in case of a downward sloping demand curve will be

A
Greater than one

B
Less than one or greater than one

C
One

D
Infinity

Solution

With a downward-sloping demand curve, price and quantity demanded move in opposite directions, so the price elasticity of demand is always negative. A positive percentage change in price implies a negative percentage change in quantity demanded, and vice versa.
Question 10
1 / -0.25

The value of elasticity in case of a rectangular hyperbola demand curve will be

A
One

B
Less than one or greater than one

C
Greater than one

D
Infinity

Solution

Rectangular hyperbola curve said to be unitary elastic as elasticity along the demand curve is same.
Question 11
1 / -0.25

A consumer reaches equilibrium at the point where:

A
TU=P

B
MU is less than P

C
MU=P

D
MU is greater than P

Solution

To determine the equilibrium point, consumer compares the price (or cost) of the given commodity with its utility (satisfaction or benefit). Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.
Question 12
1 / -0.25

If price elasticity of demand for a good is (-) 3.If the price rises from Rs. 10 to Rs. 12 per unit, what is the percentage change in demand?

A
30 percent

B
100 percent

C
40 percent

D
60 percent

Solution

ed=ed= 3
% change in quantity demanded =?
% change in price = (12 −10/10)∗100=20(12 −10/10)∗100=20%

by using %age method to calculate elasticity
60%
Question 13
1 / -0.25

If price elasticity of demand for a good is (-) 2.If the price falls from Rs. 8 the consumer buys 50 percent more, what is the new price?

A
2

B
5

C
4

D
6

Solution

ed = % change in quantity demanded / % change in price
% change in quantity demanded [= 50
ed = 2
% change in price = X
by using above formula
50 / X = 2
X = 25

25% of 8 is 2.
new price 8-2 = 6.
Question 14
1 / -0.25

Due to a 10 percent fall in the price of a good, its demand rises from 400 units to 450 units. Calculate its price elasticity of demand.

A
3.25.

B
3.25.

C
25. 2.

D
1.25

Solution

Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its price change.
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
% Change in Quantity = 50/400 x 100 = 12.5
% Change in Price = 10
12.5/10 = 1.25
Question 15
1 / -0.25

Due to a rise in the price of a good by Rs.5, its demand decreases from 100 units to 95 units. Its price elasticity of demand is 1.2. Calculate the price before the change.

A
Rs. 20

B
Rs. 100

C
Rs. 120

D
Rs. 240

Solution

ed = (ΔQ/ ΔP) * (P/Q)
ΔQ = 5
ΔP = 5
P = ?
Q= 100
ed = 1.2
by using above formula
1.2 = (5/5)*(P/100)
P = 120