Consumer’s Demand Theory Flashcards
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Multiple Choice Questions – Principles of Economics (I.COM Part-1)
- The ability of a commodity to satisfy human wants is called:
(A) Value
(B) Usefulness
(C) Utility
(D) Wealth
- The utility of a commodity becomes zero when:
(A) The want is satisfied to a certain extent
(B) The want is fully satisfied
(C) The utility is positive
(D) The want is not satisfied
- The utility of the last unit of a commodity consumed is called:
(A) Positive utility
(B) Negative utility
(C) Total utility
(D) Marginal utility
- When marginal utility is zero, total utility is:
(A) Minimum
(B) Positive
(C) Maximum
(D) Zero
- When marginal utility is positive, total utility:
(A) Decreases
(B) Increases
(C) Does not change
(D) Becomes zero
- When marginal utility is negative, total utility:
(A) Decreases
(B) Increases
(C) Does not change
(D) Becomes negative
- In mathematics, the symbol used for utility is:
(A) U
(B) M
(C) X
(D) Y
- The law stating that marginal utility of a commodity diminishes with its continuous consumption is called:
(A) Law of Diminishing Marginal Utility
(B) Law of Equi-Marginal Utility
(C) Law of Demand
(D) Law of Decreasing Returns
- According to which economist is utility measurable?
(A) Marshall
(B) Adam Smith
(C) Robbins
(D) Keynes
- Another name for the Law of Equi-Marginal Utility is:
(A) Law of Diminishing Marginal Utility
(B) Law of Demand
(C) Law of Constant Returns
(D) Law of Indifference
- To determine consumer equilibrium, Professor Marshall used the:
(A) Law of Diminishing Marginal Utility
(B) Law of Equi-Marginal Utility
(C) Law of Demand
(D) Law of Constant Returns
- The objective of a rational consumer is to:
(A) Save maximum income
(B) Buy goods at the lowest price
(C) Make the best choice from available economic goods
(D) Attain maximum utility from spending
- The curve representing the Law of Diminishing Marginal Utility:
(A) Moves downward from left to right
(B) Moves upward from left to right
(C) First rises and then falls after a certain point
(D) Is parallel to the x-axis
- The Law of Diminishing Marginal Utility applies to:
(A) Money and wealth
(B) Diamonds and jewels
(C) Fashionable goods
(D) Necessities of life
- Initial utility is:
(A) More than the sum of individual utilities of all units
(B) Less than the sum of individual utilities of all units
(C) Equal to the sum of individual utilities of all units
(D) Equal to or decreases with more consumption
- According to the Law of Diminishing Marginal Utility, the utility of every additional unit of a commodity:
(A) Increases
(B) Decreases
(C) Remains constant
(D) Rises sharply
- The following formula represents which law?

(A) Law of Diminishing Marginal Utility
(B) Law of Equi-Marginal Utility
(C) Law of Demand
(D) Law of Increasing Returns
- Which law applies when the marginal utilities of all purchased goods are equal?
(A) Law of Diminishing Marginal Utility
(B) Law of Equi-Marginal Utility
(C) Law of Demand
(D) Law of Increasing Returns
- Utility is related to:
(A) Usefulness
(B) Uselessness
(C) Necessities
(D) Desire
- The utility attained by consuming the last unit of a commodity is called:
(A) Positive utility
(B) Negative utility
(C) Zero utility
(D) Marginal utility
- The utility attained by consuming all units of a commodity is called:
(A) Positive utility
(B) Negative utility
(C) Total utility
(D) Marginal utility
- Who stated that utility is measurable?
(A) Marshall
(B) Adam Smith
(C) Robbins
(D) Keynes
- Total utility is maximized when marginal utility is:
(A) Positive
(B) Negative
(C) Zero
(D) Minimum
- Total utility increases when marginal utility is:
(A) Positive
(B) Negative
(C) Zero
(D) Maximum
- Total utility decreases when marginal utility is:
(A) Positive
(B) Negative
(C) Zero
(D) Minimum
- Which law forms the basis of the Law of Demand?
(A) Law of Supply
(B) Law of Diminishing Marginal Utility
(C) Law of Equi-Marginal Utility
(D) Law of Decreasing Returns
- The slope of the marginal utility curve is:
(A) Positive
(B) Negative
(C) Vertical
(D) Horizontal
- The marginal utility curve moves:
(A) Downward from left to right
(B) Upward from left to right
(C) Parallel to the x-axis
(D) Parallel to the y-axis
- The economist who presented the first law of consumption is:
(A) Marshall
(B) Adam Smith
(C) Robbins
(D) Pigou
- Who argued that utility is not measurable?
(A) Adam Smith
(B) Marshall
(C) Cannon
(D) Hicks
- The Law of Diminishing Marginal Utility applies to:
(A) Money and wealth
(B) Historical artifacts
(C) Normal goods of necessity
(D) Narcotics
- Which is NOT an assumption of the Law of Diminishing Marginal Utility?
(A) The same nature of the commodity
(B) Consumption occurs at intervals
(C) The quantity of the commodity is appropriate
(D) The consumer’s mental state changes
- Which economist presented the Cardinal Theory of Utility?
(A) Marshall
(B) Keynes
(C) Cannon
(D) J.B. Say
- According to the Law of Diminishing Marginal Utility, the marginal utility of a commodity:
(A) Increases
(B) Decreases
(C) Remains constant
(D) Becomes negative
- Consumer goods are those goods that are consumed:
(A) Directly
(B) Indirectly
(C) Sometimes
(D) Never
- A want is fully satisfied when its marginal utility is:
(A) Positive
(B) Zero
(C) Negative
(D) Minimum
- If no satisfaction is gained from consuming a commodity, its marginal utility is:
(A) Zero
(B) Positive
(C) Negative
(D) Minimum
- When total utility is decreasing, marginal utility is:
(A) Zero
(B) Positive
(C) Negative
(D) Maximum
- When total utility is increasing, marginal utility is:
(A) Zero
(B) Positive
(C) Negative
(D) Minimum
- At the point of satiety, marginal utility is:
(A) Zero
(B) Positive
(C) Negative
(D) Initial
- The first law of consumption is called:
(A) Law of Demand
(B) Law of Diminishing Marginal Utility
(C) Law of Equi-Marginal Utility
(D) Law of Supply
- The concept of the Law of Diminishing Marginal Utility was presented by:
(A) Marshall
(B) Robbins
(C) Keynes
(D) Pigou
This version improves clarity, structure, and readability while maintaining the original meaning. Let me know if you need further refinements!
Long. What is meant by utility? Describe the determinants of utility.
Define marginal utility and total utility. Describe the inter-relationship between total utility and marginal utility.
Explain with the help of table and diagram that the total utility is maximum when marginal utility is zero.
Long. Describe law of diminishing marginal utility. Also describe its assumptions and exceptions as well as its practical importance.
Long. Describe law of equi-marginal utility and its practical importance too.
Long. Explain consumer’s equilibrium with the help of equation given below:
Define utility.
Differentiate between utility and usefulness.
Utility: The power or ability of a good or service to satisfy human want is called utility.
For example, water has the power to satisfy thirst, bread has the power to satisfy hunger, bulb gives light, pen is to write with etc.
Difference between Utility and Usefulness: Utility does not mean usefulness because many goods are not useful e.g, wine, opium, cigarette, heroin etc. These goods are injurious to human health but they have utility because they satisfy human wants. Wine has utility for drunkard because he can not help drinking. So, we can say that utility and usefulness are like two poles which stand for away from each other.
What is meant by marginal utility?
What is meant by total utility?
State the relationship between total utility and marginal utility.
Marginal Utility: Utility of the last unit of a commodity consumed or utility of an additional unit consumed is called marginal utility. Separate utility of every unit is also called marginal utility.
Total Utility: Utility which is attained from the use of a specific number of the units of a commodity is called total utility. Total utility is equal to the sum of separate utility which is attained form every unit. For example, if a man cats two mangoes while the utility of the first mango is 6 and 4 of the second. Total utility will be 6 + 4 = 10.
Relationship between total utility and marginal utility: Total utility and marginal utility has the following relationship:-
As long as marginal utility is positive, total utility increases.
（i1）
When marginal utility is zero, total utility is maximum.
(im)
When marginal utility is negative, total utility decreases.
Define law of diminishing marginal utility.
Define: law of equi marginal utility.
Definition of law of diminishing marginal utility: Prof Marshall ahs defined law of diminishing marginal utility in the following words:
The additional benefit which a person derives from an increase of his stock of good diminishes with every increase in the stock that he already has.
“Total utility from a given amount is maximum when it is spent on various goods in such
way that marginal utility of all goods becomes equal.”
Law of Equi-Marginal Utility
What is meant by consumer’s behaviour?
Consumer Behaviour: The behaviour of the people with regard to selection, purchase and consumption of goods and services for satisfaction of their wants is called consumer’s behaviour.
What is Consumer Behavior?
Consumer behavior is the way people decide what to buy, why they buy it, and how they use it. It includes everything from choosing a product to deciding where and when to purchase it.
Example:
Imagine you want to buy a new phone. Your consumer behavior includes:
1. Thinking about what you need (Do you want a gaming phone or a camera phone?).
2. Researching brands (Samsung, Apple, or Xiaomi?).
3. Checking prices (Which one fits your budget?).
4. Reading reviews (What do other people say about it?).
5. Deciding where to buy (Online or in a store?).
6. Making the purchase (Finally buying the phone!).
Why is Consumer Behavior Important?
• Helps businesses understand what customers want.
• Helps companies advertise better and improve products.
• Helps businesses decide pricing, design, and sales strategies.
What is meant by initial utility?
What is meant by positive utility?
What is meant by zero utility.
What is meant by negative utility?
Initial Utility: Utility of the first unit of a commodity consumed is known as initial utility.
Positive Utility: As long as total utility keeps on increasing and marginal utility is not zero, then utility is positive.
Point of Satiety: When desire of a good is fully satisfied and consumer has no desire to consume further unit, then utility is zero.
Negative Utility: When utility of a commodity is zero but consumer consumes further units of it, then utility becomes negative. Total utility decreases in case of negative utility.
Write consumer’s equilibrium in the form of an equation.
Write four assumptions of law of diminishing marginal utility.
Following are four assumptions of law of diminishing marginal utility:
(0)
Unit should be a suitable quantity.
(ii)
Consumption should be continuous.
(111)
All the units of the commodity be the same.
(iv)
Taste of the consumer should not change.
Write four limitations of law of diminishing marginal utility.
Q.16:
Exceptions or Limitations of the Law of Diminishing Marginal Utility
The law of diminishing marginal utility, though foundational, does not apply universally. Here are ten key exceptions, enriched with facts and relevant quotes for deeper insight:
- Knowledge
• Explanation: Acquiring knowledge often leads to an increasing desire for more. A person learning a new skill or gaining expertise in a subject becomes motivated to delve deeper into the field.
• Fact: Research shows that knowledge acquisition activates the brain’s reward centers, fostering curiosity and the drive to learn.
• Quote: “The more I read, the more I acquire, the more certain I am that I know nothing.” – Voltaire
- Wealth and Money
• Explanation: The desire to accumulate wealth generally increases over time. While money itself may not directly provide satisfaction, the power it represents continues to appeal. However, wealthy individuals may experience diminishing utility when spending on non-essential items.
• Fact: Behavioral studies reveal that after reaching a certain income level, emotional well-being levels off, but the pursuit of wealth continues due to societal pressures.
• Quote: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Rogers
- Historical or Rare Items
• Explanation: Collectors of rare items, such as antiques or historical artifacts, often find their desire intensifies with each addition to their collection. The rarity and uniqueness enhance the perceived value.
• Fact: In markets for rare goods, the principle of scarcity drives higher demand, contradicting the diminishing utility pattern. For example, the sale of rare coins has increased in value by over 300% in the past decade.
• Quote: “Rarity gives everything its value.” – Thomas Fuller
- Personal Show-off
• Explanation: Luxury goods, fashion items, or cosmetics for status enhancement often defy the law. For such items, consumption increases desire as they boost one’s social image.
• Fact: Social psychologists link conspicuous consumption to higher social esteem and increased demand, especially in collectivist cultures.
• Quote: “Fashion is the armor to survive the reality of everyday life.” – Bill Cunningham
- Addictive Substances
• Explanation: Drugs, alcohol, and narcotics often lead to an increasing urge for consumption due to addiction. The craving for more intensifies as tolerance builds, contradicting the law of diminishing marginal utility.
• Fact: Studies show that dopamine tolerance in addiction makes individuals consume higher quantities to achieve the same level of satisfaction.
• Quote: “The chains of habit are too weak to be felt until they are too strong to be broken.” – Samuel Johnson
- Entertainment and Art
• Explanation: For entertainment or art, repeated consumption may enhance appreciation. For instance, watching a favorite movie multiple times might increase emotional attachment or nostalgia.
• Fact: The concept of affective forecasting shows that people often underestimate the pleasure derived from repeated engagement with favorite forms of entertainment.
- Technology and Innovation
• Explanation: New gadgets and technology often defy the law. For example, owning more advanced devices increases the desire to explore their capabilities or stay updated with future innovations.
• Fact: The average smartphone upgrade cycle has decreased from 24 months to 15 months in the last decade due to rising consumer demand for new features.
• Quote: “Technology is best when it brings people together.” – Matt Mullenweg
- Emotional Relationships
• Explanation: Relationships, unlike goods, defy diminishing utility. The more time and energy invested in loved ones, the deeper the bond grows, intensifying the desire to nurture them further.
• Fact: Psychologists emphasize that attachment behaviors increase satisfaction and deepen over time, contrary to the utility pattern of goods.
• Quote: “The more you invest in a relationship, the more valuable it becomes.” – Unknown
- Philanthropy
• Explanation: Acts of giving and helping others tend to create increasing satisfaction. Each act of kindness often fosters a stronger desire to give back to society.
• Fact: Neuroscience research reveals that charitable acts stimulate the reward system, often leading to a feedback loop of happiness and generosity.
• Quote: “No one has ever become poor by giving.” – Anne Frank
- Fame and Recognition
• Explanation: The desire for fame and recognition often grows with achievement. As individuals gain recognition, they become more motivated to achieve higher levels of success.
• Fact: Studies on celebrity psychology reveal that fame can be addictive, as public acknowledgment increases self-esteem and social validation.
• Quote: “Fame is the thirst of youth.” – Lord Byron
Write three points of importance of law of diminishing marginal utility.
Ans:
The law of diminishing marginal utility has profound implications in various fields:
1. Consumer Decision-Making:
Consumers equate the marginal utility of goods with their prices to make purchasing decisions. For example, a shopper may stop buying more apples when the marginal utility no longer justifies the price.
2. Basis of the Law of Demand:
As marginal utility decreases with quantity, consumers are willing to buy more only at lower prices, forming the basis of the demand curve.
3. Taxation Policies:
The law supports progressive taxation. Wealthy individuals derive less marginal utility from their income, justifying higher tax rates for equitable wealth distribution.
4. Utility in Business Strategy:
Businesses use the law to set pricing strategies, offer discounts for bulk purchases, and design promotional campaigns to maximize consumer engagement.
5. Social Welfare Programs:
Governments allocate resources to ensure the basic needs of all citizens, considering that essential goods have higher marginal utility for the poor.
6. Public Finance and Budgeting:
Policymakers prioritize spending on areas where marginal utility is high, such as healthcare, education, and infrastructure.
7. Marketing Insights:
Marketers leverage the law to create limited-time offers or exclusive products, increasing urgency and perceived utility.
8. Behavioral Economics:
The law highlights the psychological aspects of consumption, helping economists understand consumer satisfaction and spending patterns.
