Theory of Consumer Behaviour Important Questions for class 12 Economics Utility, Total Utility, Marginal Utility and Its Law
1.Consumer The one who takes decisions about what to buy for the satisfaction of wants, both as an individual or as a member of a household, is called a consumer.
2.Utility The want satisfying power of a good is called utility.
3.Cardinal Measurement of Utility It is that concept of utility which advocates that utility can be measured in terms of units like 2, 4, 6, 8, etc. In other words, utility is measurable in standard numerical units, known as‘utils’.
4.Ordinal Measurement of Utility According to this utility cannot be measured in numerical units, a consumer can (at best) rank his preferences in the sets of most preferred to least preferred sets.
5.Total Utility (TU) It is the sum total of Marginal Utilities derived from the consumption of all the units of a commodity.
TU = MU X + MU 2 +….+MU„ or LMU
6.Marginal Utility (MU) It refers to additional utility on account of the consumption of an additional unit of a commodity.
MU=TU n -TU n _ 1 Where, MU = Marginal Utility
TU n = Total Utility at V units TU n _i= Total Utility at (n – 1) units.
7.Relationship between Total Utility (TU) and Marginal Utility (MU)
i)When
MU
is
8.Law of Diminishing Marginal Utility The law states that as more and more standard units of a commodity are continuously consumed, Marginal Utility derived from each successive units goes on diminishing. It is also called fundamental law of satisfaction
9.Assumptions of Law of Diminishing Marginal Utility
positive
(+),
TU
rises.
10.Law of Equi-marginal Utility The law states that in order to maximise their satisfaction a consumer must spend his money on two goods in such a manner that the ratio of Marginal Utility of a commodity to its price becomes equal to the ratio of
(ii)When
MU
Previous Years Examination Questions
1 Mark Questions
1.Define utility. (Compartment 2014, Foreign 2014, Ail India 2010,2006)
Ans. The wants satisfying power of a good is called utility.
2.Define Marginal Utility (MU). (AllIndia2011)
Ans. Marginal Utility (MU) refers to additional utility on account of the consumption of an additional unit of a commodity.
MU=TU n -TU n _1 ‘
is
3 Marks Questions
3.Explain the Law of Diminishing Marginal Utility with the help of a utility schedule. (Delhi 2013)
or
Explain the Law of Diminishing Marginal Utility with the help of a Total Utility schedule.
(All India 2011; Delhi 2010)
Ans. It is the fundamental Law of Utility approach to consumer’s equilibrium. This law states that as more and more standard units of a commodity are continuously consumed, the Marginal Utility obtained from each successive unit goes on diminishing. This law is also called as a ‘Fundamental Law of Satisfaction’ or ‘Fundamental Psychological Law’.
zero
Note The above law is based upon certain assumptions. It is assumed that the different unit consumed should be identical in all respects and consumption should be continuous.
4.Define Marginal Utility (MU). State the Law of Diminishing Marginal Utility. (All India 2006)
Ans . Marginal Utility (MU) refers to additional utility on account of the consumption of an additional unit of a commodity.
MU=TU n -TU n _1 ‘
(0),
It is the fundamental Law of Utility approach to consumer’s equilibrium. This law states that as more and more standard units of a commodity are continuously consumed, the Marginal Utility obtained from each successive unit goes on diminishing. This law is also called as a ‘Fundamental Law of Satisfaction’ or ‘Fundamental Psychological Law’.
TU
Note The above law is based upon certain assumptions. It is assumed that the different unit consumed should be identical in all respects and consumption should be continuous.
5.Define utility. State the Law of Diminishing Marginal Utility. (Delhi 2006C)
Ans. The wants satisfying power of a good is called utility.
is
maximum.
Note The above law is based upon certain assumptions. It is assumed that the different unit consumed should be identical in all respects and consumption should be continuous.
6 Marks Question
6.Explain the difference between cardinal utility and ordinal utility. Give example. (All India 2012)
Ans. Difference between cardinal utility and ordinal utility
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