Tag: business economics and quantitative methods

Questions Related to business economics and quantitative methods

The law of diminishing marginal utility states that as the stock of a commodity increases with the consumer, its ________ to the consumer decreases.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. utility

  2. supply

  3. marginal utility

  4. average utility

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Correct Option: C
Explanation:

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

_______ states that as the stock of a commodity increases with the consumer, its marginal utility to the consumer decreases.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. The law of demand

  2. The law of diminishing marginal rate of substitution

  3. The law of diminishing marginal utility

  4. The law of equi-marginal utility

Show answer
Correct Option: C
Explanation:

The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Which of the following assumptions is applicable under the Marshallian approach of consumer behaviour?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Law of diminishing utility (DMU) holds true.

  2. Marginal utility of money keeps changing.

  3. Utility is ordinally measurable.

  4. All of the above.

Show answer
Correct Option: A
Explanation:

The Law of Diminishing Marginal Utility was given by Alfred Marshall. According to the theory, the marginal utility of a consumer goes on falling as he/she consumes more and more of  a product.

Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.

The assumptions of this Marshallian approach of consumer behaviour are:

1. Marginal utility of money is constant.

2. Utility is cardinally measurable which means that the utility or satisfaction of a consumer can be measured in terms of cardinal numbers.

3. The consumer is a rational human being.

"Utility is a subjective concept therefore it could only be ranked" defines the position of  _______.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. cardinal utility theorists

  2. ordinal utility theorists

  3. behavioral theorists

  4. all id the above

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Correct Option: B
Explanation:

According to the concept of ordinal utility approach, it is impossible to measure utility in absolute terms and thus it cannot be compared. The reason for it being that it is a psychological phenomena. However, according to the ordinal utility theorists, a consumer can rank various combinations of goods and services according to his preference. 

Which one is not an assumption of law of diminishing marginal utility?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Rational consumer

  2. Short period

  3. Cardinal utility

  4. Substitution of goods

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Correct Option: D
Explanation:

Substitution of goods is not an assumption under law of DMU, because if one good substitutes for another then law of DMU will not remain applicable.

Marginal utility (MU) curve is always ________.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. rising

  2. falling

  3. parallel to x-axis

  4. parallel to y-axis

Show answer
Correct Option: B
Explanation:

The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derived the demand curve. 
The marginal utility curve is negatively sloped. It decreases as the number of rides increases. Each additional ride adds less utility that the preceding one.

Law of diminishing marginal utility states that ____________.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. with successive increase in consumption of additional units, marginal utility also increases

  2. with successive increase in consumption of additional units, marginal utility decreases

  3. with successive increase in consumption of additional units, marginal utility remains constant

  4. with successive increase in consumption of additional unit, marginal utility first increases then decreases

Show answer
Correct Option: B
Explanation:

Law of diminishing marginal utility states that with the increase in consumption, the marginal utility gets decreased .This happens because in two commodity case a consumer is willing to sacrifice less of one good for consuming an additional unit of another good.

Which of these is not an essential assumption of law of diminishing marginal utility concept?

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Different units consumed should be identical

  2. Consumers taste and preference should not change

  3. There should be some time gap between consumption

  4. The different units consumed should consist of standard unit

Show answer
Correct Option: C
Explanation:

One of the assumption of law of diminishing marginal utility is that the consumption should be continuous. For example, to hold the law of diminishing marginal utility a consumer should consume ice-creams continuously at a particular point of time.

Law of Diminishing Marginal utility is applicable to _________.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. Intermediate products

  2. Capital goods

  3. Consumer goods

  4. Raw materials

Show answer
Correct Option: C
Explanation:

Law of diminishing marginal utility is applicable to the goods which are consumed by the consumers. The law states that as the consumption of a good increases, the marginal utility tends to decline as the consumer is willing to sacrifice much lesser amount of one good in order to consume one additional unit of another good.

Identify which of the following statement is correct and which is incorrect.
A. The marginal utility of a good increase, if the want of the consumer is intensified by consuming a very small quantity of it such as a very little quantity of water given to a very thirsty person.

B. The law of diminishing marginal utility states that as the stock of a commodity decreases with the consumer, its marginal utility to the consumer decreases.

business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

  1. A correct, B correct

  2. A correct, B incorrect

  3. A incorrect, B incorrect

  4. A incorrect, B correct

Show answer
Correct Option: B
Explanation:
A)If the want of the consumer gets intensified or increased by consuming a very small quantity then the marginal utility which will be derived from the another additional unit of that commodity will increase.For example, if a very less amount of water is given to a thirsty person, then the marginal utility will rise by consuming the second glass of water as the his want gets intensified even after consuming the first glass of water.

B)The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.