Tag: utility and law of diminishing marginal utility

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

Law of diminishing marginal utility states that as the consumer buys more units of a commodity _________.

  1. total utility falls

  2. marginal utility falls

  3. average utility falls

  4. both total and marginal utility falls
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Law of diminishing marginal utility states that as consumer will increase its consumption of a commodity, the marginal utility derived from every successive unit of consumption will decrease and a situation may come when marginal utility is zero or negative. 

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

Name the economists who developed:
Marginal utility theory - __________, and
Indifference curve theory - ________.

  1. Marshall; Hicks

  2. Hicks; Marshall

  3. Marshall; Samuelson

  4. Robbins: Hicks
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • Alfred Marshall was a British economist who developed most of the modern economic theory including utility analysis.
  • John Hicks was a British economist who criticized the utility theory and developed a newer theory on consumer behaviour known as the indifference curve theory. 
Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

Which assumption implies the consumer aims at utility maximisation?

  1. Rationality

  2. Ordinality

  3. Cardinality

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Rationality of consumers refer to the situation when consumers take decisions with reason and logic and without any kind of bias. When the consumer takes rational decision they try to get highest satisfaction by spending least amount of money.

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

An assumption of the constant marginal utility of money means the importance of money to the consumer is _________.

  1. rising

  2. falling

  3. unchanged

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Constant marginal utility of money means that the utility per unit of money remains unchanged for the consumer. This implies that each additional unit of money provides the consumer with the same level of satisfaction. This leads to the use of money as the measuring rod in utility analysis. 

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

Which assumption of consumer theory states that if the consumer prefers A to B, then he will not prefer B to A in another time period?

  1. Transitivity

  2. Preference

  3. Rationality

  4. Consistency
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the consistency theory, consumer will not change his preferences in another time period. So if he prefers commodity A over commodity B then he will never prefer B over A. It is one of the assumption of ordinal utility theory analysis.

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

Law of diminishing marginal utility states that when more and more units of a commodity are consumed, marginal utility ___________.

  1. begins to increase

  2. remains constant

  3. begins to decrease

  4. becomes zero
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Law of diminishing marginal utility states that as consumer will increase its consumption of a commodity, the marginal utility derived from every successive unit of consumption will decrease and a situation may come when marginal utility becomes zero or negative. 

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


Marginal Utility must diminish as more and more standard units of a commodity are continuously consumed.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marginal utility refers to additional utility which a consumer gets on consuming one extra unit of a commodity. So, as consumer consumes more and more of a commodity, the satisfaction at each level will diminish. This is in accordance with the law of diminishing marginal utility.

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

Consumer equilibrium can be determined only if the law of diminishing marginal utility holds good.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Consumer equilibrium will be achieved only when MU diminishes as more units of a commodity are consumed. In case MU tends to rise, consumption of a commodity will never reach to an end. Thus, determination of equilibrium will never be possible.

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

The law of equi- marginal utility explains equilibrium of the _______.

  1. consumer

  2. producer

  3. economy

  4. state
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • The law of equi-marginal utility is an extension of law of DMU. It states that with the limited that a person has, he aims to spend it on different commodities and earn maximum and equal satisfaction from them. 
  • He should such a combination of goods so that the utility derived from the last unit of the goods are the same. 
  • Thus, it aims to establish equilibrium at that point where the consumers gets maximum satisfaction by consuming a particular combination of goods. 
Multiple choice business economics and quantitative methods consumer's behaviour consumer equilibrium laws in economics utility and law of diminishing marginal utility

The law of equi-marginal utility was stated by _______.

  1. Adam Smith

  2. A. C. Pigou

  3. Alfred Marshall

  4. J. B. Say
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A consumer is in equilibrium position when marginal utility of money expenditure on each goods is the same. This situation holds the law of equi-marginal utility true. For example: if a consumer consumes oranges and apples, then the marginal utility derived from the last rupee spent on either apples or orange will be same.
This law of equi-marginal utility is stated by a British economist named Alfred Marshall.