Consumer’s Equilibrium - Marginal Utility Approach
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Questions and Answers

What does the indifference curve analysis abandon?

  • The concept of non-satiety
  • The concept of rational consumer
  • The concept of cardinal utility (correct)
  • The concept of ordinal utility

    • What does the indifference curve represent?

  • The tabular representation of the various combinations of two goods giving the consumer equal satisfaction
  • The assumption that the consumer is not over supplied with goods to reach the point of saturation
  • The combinations of two commodities that give equal level of utility or satisfaction to the consumer (correct)
  • The marginal rate of substitution between the two goods

    • What does the indifference schedule represent?

  • The assumption that the consumer is not over supplied with goods to reach the point of saturation
  • The concept of diminishing marginal rate of substitution
  • The tabular representation of the various combinations of two goods giving the consumer equal satisfaction (correct)
  • The graphical representation of various combinations of two commodities that give equal level of utility or satisfaction to the consumer

    • What is the assumption of non-satiety in indifference curve analysis?

    <p>Consumers prefer a larger unit over a smaller unit of commodity</p> Signup and view all the answers

    What is the assumption of diminishing marginal rate of substitution in indifference curve analysis?

    <p>As the consumer consumes additional unit of one commodity, they are prepared to give less amount of one commodity for an additional unit of the other commodity</p> Signup and view all the answers

    What is the assumption of rational consumer in indifference curve analysis?

    <p>A consumer always aims to maximize total satisfaction</p> Signup and view all the answers

    What is the key characteristic of a consumer's equilibrium?

    <p>The consumer is maximizing their total utility.</p> Signup and view all the answers

    How does the marginal utility approach explain consumer's equilibrium?

    <p>The consumer continues to purchase goods until the marginal utility equals the price.</p> Signup and view all the answers

    What does the downward sloping curve in Figure 1.5 represent?

    <p>The consumer's marginal utility curve.</p> Signup and view all the answers

    What is the significance of the point where the marginal utility curve and the price line intersect in Figure 1.5?

    <p>It represents the consumer's optimal consumption level.</p> Signup and view all the answers

    How does the indifference curve analysis differ from the marginal utility approach in explaining consumer behavior?

    <p>Indifference curve analysis allows for the analysis of the consumer's consumption of multiple goods, while the marginal utility approach is limited to the analysis of a single good.</p> Signup and view all the answers

    Suppose a consumer's marginal utility for a good decreases as they consume more of it. How does this relate to the Law of Diminishing Marginal Utility?

    <p>The Law of Diminishing Marginal Utility states that as the consumer consumes more of a good, the marginal utility of that good decreases.</p> Signup and view all the answers

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