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?

Consumers prefer a larger unit over a smaller unit of commodity (B) Signup and view all the answers

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 (A) Signup and view all the answers

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

A consumer always aims to maximize total satisfaction (C) Signup and view all the answers

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

The consumer is maximizing their total utility. (B) Signup and view all the answers

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

The consumer continues to purchase goods until the marginal utility equals the price. (B) Signup and view all the answers

What does the downward sloping curve in Figure 1.5 represent?

The consumer's marginal utility curve. (B) 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?

It represents the consumer's optimal consumption level. (A) Signup and view all the answers

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. (C) 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?

The Law of Diminishing Marginal Utility states that as the consumer consumes more of a good, the marginal utility of that good decreases. (D) Signup and view all the answers

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