12 Questions
What does the indifference curve analysis abandon?
The concept of cardinal utility
What does the indifference curve represent?
The combinations of two commodities that give equal level of utility or satisfaction to the consumer
What does the indifference schedule represent?
The tabular representation of the various combinations of two goods giving the consumer equal satisfaction
What is the assumption of non-satiety in indifference curve analysis?
Consumers prefer a larger unit over a smaller unit of commodity
What is the assumption of diminishing marginal rate of substitution in indifference curve analysis?
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
What is the assumption of rational consumer in indifference curve analysis?
A consumer always aims to maximize total satisfaction
What is the key characteristic of a consumer's equilibrium?
The consumer is maximizing their total utility.
How does the marginal utility approach explain consumer's equilibrium?
The consumer continues to purchase goods until the marginal utility equals the price.
What does the downward sloping curve in Figure 1.5 represent?
The consumer's marginal utility curve.
What is the significance of the point where the marginal utility curve and the price line intersect in Figure 1.5?
It represents the consumer's optimal consumption level.
How does the indifference curve analysis differ from the marginal utility approach in explaining consumer behavior?
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.
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?
The Law of Diminishing Marginal Utility states that as the consumer consumes more of a good, the marginal utility of that good decreases.
Learn about a consumer's equilibrium using the marginal utility approach, where maximum satisfaction is achieved with no tendency to change consumption. Explore how the price and utility of goods influence a consumer's buying decision, particularly in the context of the Law of Diminishing Marginal Utility.
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