16 Questions
What is the difference between a normal good and an inferior good?
A normal good is a good for which demand increases as income increases, while an inferior good is a good for which demand decreases as income increases.
Give an example of a substitute good.
Margarine is a substitute for butter.
What happens to the demand for a substitute good when its price increases?
Consumers are likely to switch to the other good, leading to an increase in demand for that good.
Provide an example of complementary goods.
Coffee and sugar are complementary goods.
What effect does an increase in the price of a complementary good have on the demand for the other good?
The demand for the other good is likely to decrease since consumers will be consuming less of the complementary good.
Name three demographic factors that can affect consumer demand.
Age, gender, and education level
What is consumer equilibrium?
Consumer equilibrium refers to a situation where a consumer gets maximum satisfaction out of his given income and has no tendency to make any change in his existing expenditure.
What is the condition for consumer equilibrium in case of a single commodity?
Marginal Utility (MU) in terms of price of the commodity is equal to its Marginal utility of Money (MUM).
What happens if less than equilibrium quantity is consumed?
It results in a Consumer Surplus.
What happens if more than equilibrium quantity is consumed?
It results in a Consumer Deficit.
What is the fundamental law of satisfaction?
The additional benefit a person derives from a given increase in their stock of a good diminishes with every increase in the stock that they already have.
How is consumer equilibrium achieved according to the Law of Equi-Marginal Utility?
Consumer equilibrium is achieved when the ratio of marginal utilities of two goods is equal to the ratio of their prices.
What is the concept also known as Gossen’s Second Law of Maximum Satisfaction?
The concept is also known as Gossen’s Second Law of Maximum Satisfaction.
What is the adjustment mechanism if the ratio of marginal utilities is not equal to the ratio of prices?
The consumer will adjust their consumption to reach equilibrium.
According to Marshal Approach, what will the consumer continue to adjust their consumption until?
The consumer will continue to adjust their consumption until the marginal utility of each good is equal to its price.
What is the basis of the adjustment mechanism in consumer equilibrium according to Marshal Approach?
The adjustment mechanism is based on the Law of Diminishing Marginal Utility.
Test your knowledge of consumer equilibrium and marginal utility with this quiz. Explore the concepts of maximizing satisfaction and expenditure planning in the context of single commodity equilibrium.
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