Chapter 2: Theory of Consumer Behaviour | 50 One Liner Q&A for MP Board and CBSE Board.

50 Important One-Liners - Microeconomics Chapter 2

Author ✍️ R. Littey

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Class 12th – Microeconomics

Chapter 2: Theory of Consumer Behaviour (50 Important Q&A)

Q1. Who is a Consumer? Ans. An individual who buys goods and services to satisfy personal wants is called a consumer.

Q2. What is the primary objective of a consumer? Ans. To achieve maximum satisfaction.

Q3. What is Utility? Ans. It is the power or capacity of a commodity to satisfy human wants.

Q4. Can utility be measured? Ans. No, utility is a subjective psychological experience.

Q5. What is Total Utility (TU)? Ans. The total satisfaction derived from consuming all possible units of a commodity.

Q6. What is Marginal Utility (MU)? Ans. The change in total utility resulting from the consumption of one additional unit.

Q7. What is the formula for Marginal Utility? Ans. MU = TUₙ – TUₙ₋₁

Q8. What is the relationship between TU and MU? Ans. When TU is at its maximum, MU becomes zero.

Q9. Who gave the Law of Diminishing Marginal Utility? Ans. Alfred Marshall.

Q10. What does the Law of Diminishing Marginal Utility state? Ans. As consumption increases, the marginal utility derived from each successive unit decreases.

Q11. When does Marginal Utility become zero? Ans. When Total Utility is at its maximum.

Q12. When does Marginal Utility become negative? Ans. When Total Utility begins to decline.

Q13. Which economist is associated with the Cardinal Utility approach? Ans. Alfred Marshall.

Q14. Who proposed the Ordinal Utility approach? Ans. Hicks and Allen.

Q15. What is Consumer Equilibrium? Ans. A situation where a consumer derives maximum satisfaction from their limited income.

Q16. What is the condition for consumer equilibrium in the case of a single commodity? Ans. MU = Price.

Q17. What is the formula for equilibrium in the case of two commodities? Ans. MUₓ / Pₓ = MUᵧ / Pᵧ

Q18. What does a Budget Line represent? Ans. All combinations of two goods that a consumer can afford with their given income and prices.

Q19. What is the equation of the Budget Line? Ans. PxX + PyY = M

Q20. What is a Budget Set? Ans. The set of all possible bundles of goods that a consumer can purchase with their income.

Q21. What is an Indifference Curve? Ans. A curve showing various combinations of two goods that provide equal satisfaction.

Q22. What is the slope of an Indifference Curve? Ans. It is downward sloping (negative slope).

Q23. Can two Indifference Curves intersect each other? Ans. No.

Q24. What does a higher Indifference Curve represent? Ans. A higher level of satisfaction.

Q25. What is Marginal Rate of Substitution (MRS)? Ans. The rate at which a consumer substitutes one good for another while maintaining the same satisfaction level.

Q26. What is the formula for MRS? Ans. MRS = ΔY / ΔX

Q27. What happens to MRS as we move along the Indifference Curve? Ans. MRS goes on diminishing.

Q28. When is consumer equilibrium achieved using IC and Budget Line? Ans. When the Budget Line is tangent to the Indifference Curve.

Q29. What is the Price Effect? Ans. The change in demand resulting from a change in the price of a commodity.

Q30. What are the two components of Price Effect? Ans. Income Effect and Substitution Effect.

Q31. What is the Substitution Effect? Ans. Change in demand due to a commodity becoming relatively cheaper compared to others.

Q32. What is the Income Effect? Ans. Change in demand due to a change in the consumer's real income/purchasing power.

Q33. What is a Giffen Good? Ans. An inferior good whose demand increases as its price increases.

Q34. Give an example of a Giffen Good. Ans. Coarse grains consumed by the poor.

Q35. State one assumption of the Law of DMU. Ans. Consumption must be continuous.

Q36. State another assumption of the Law of DMU. Ans. Standard units of the commodity must be identical.

Q37. Utility is not related to which concept? Ans. Morality or ethics.

Q38. What is assumed about consumer income in utility analysis? Ans. Income is assumed to be constant.

Q39. What is the sign of MU when TU is rising? Ans. Positive.

Q40. What do points outside the Budget Line represent? Ans. Non-attainable or impossible combinations.

Q41. What do points inside the Budget Line represent? Ans. Attainable but under-utilized income combinations.

Q42. In which units is Cardinal Utility measured? Ans. Imaginary units called 'utils'.

Q43. What is the goal of consumer equilibrium? Ans. Maximum satisfaction from given income.

Q44. What will a consumer do if MU > Price? Ans. They will consume more of that commodity.

Q45. What will a consumer do if MU < Price? Ans. They will reduce the consumption of that commodity.

Q46. What does the slope of the Budget Line depend on? Ans. The ratio of the prices of the two goods (Px/Py).

Q47. What does the convexity of the IC represent? Ans. A diminishing Marginal Rate of Substitution (MRS).

Q48. Which theory explains consumer behavior? Ans. The theory of Marginal Utility or Indifference Curve analysis.

Q49. In which branch of economics is consumer behavior studied? Ans. Microeconomics.

Q50. Why is the state of consumer equilibrium stable? Ans. Because the consumer has no incentive to change their consumption pattern as they are getting maximum satisfaction.