Utility and Consumer's Equilibrium for CUET Economics

AnswerB · its want-satisfying capacity

1. In economics, utility is the power of a good to satisfy a want, whether or not the want is good for the person.

AnswerD · the change in total utility from consuming one more unit

1. MUₙ = TUₙ − TUₙ₋₁: the extra utility the nth unit adds.

2. The sum of the utilities from all units is total utility.

AnswerA · the sum of the marginal utilities of all units consumed

1. TUₙ = MU₁ + MU₂ + … + MUₙ.

AnswerC · utils

1. The cardinal approach assumes utility can be counted in units called utils.

2. Ranking without numbers is the ordinal approach, used with indifference curves.

AnswerA · Only I

1. I is true: utility depends on the person's want and how strong it is.

2. II is false: utility is a matter of satisfaction, not of the price paid.

AnswerA · 6 utils

1. MU₃ = TU₃ − TU₂ = 24 − 18 = 6 utils.

AnswerA · −2 utils

1. MU₇ = TU₇ − TU₆ = 28 − 30 = −2 utils.

2. A negative MU means the 7th unit lowers satisfaction.

AnswerC · The 6th unit, where TU is at its maximum of 30

1. MU₆ = TU₆ − TU₅ = 30 − 30 = 0: the 6th unit adds nothing.

2. TU is at its maximum where MU becomes zero; after that MU is negative and TU falls to 28.

AnswerB · 28 utils = 10 + 8 + 6 + 4

1. The MUs of units 1 to 4 are 10, 8, 6 and 4.

2. TU₄ = 10 + 8 + 6 + 4 = 28 utils, matching the table.

AnswerA · rises at a diminishing rate

1. Each extra unit still adds to TU because MU is positive.

2. But each adds less than the one before, so TU rises more and more slowly.

AnswerD · the 6th unit adds no utility: MU is zero

1. TU stays at 30 utils from 5 to 6 units, so the 6th unit adds 30 − 30 = 0.

2. A flat TU curve means MU = 0: the point of saturation.

AnswerC · the marginal utility of the 7th unit is negative

1. TU falls from 30 to 28, so MU₇ = 28 − 30 = −2 utils.

2. Whenever MU is negative, TU declines.

AnswerA · The 6th unit

1. The MU curve meets the zero line at 6 units.

2. At 5 units MU is still 2; at 7 units it is −2.

AnswerA · Only I

1. I is true: TU stops rising exactly when the extra unit adds nothing.

2. II is false: beyond saturation, an extra unit lowers TU, so MU is negative.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Adding a positive number to a sum raises it, so A is true.

2. R is the reason: TU is built by adding each MU, so a positive MU raises it.

AnswerA · 7 utils

1. MU₄ = TU₄ − TU₃ = 52 − 45 = 7 utils.

AnswerC · 36 utils

1. TU₃ = 15 + 12 + 9 = 36 utils.

AnswerD · A is false, but R is true.

1. A is false: at zero MU, total utility is at its highest, not zero (for example, 30 utils for a consumer whose MU runs 10, 8, 6, 4, 2, 0).

2. R is true.

AnswerC · A is true, but R is false.

1. A is true: consuming past saturation lowers satisfaction.

2. R is false: when MU is negative, TU falls.

AnswerC · Both I and II

1. I is true: positive MU means TU keeps rising.

2. II is true: each unit adds less, so the MU curve falls.

AnswerC · From 0 to 1 unit

1. The rise in TU from one unit to the next is the MU: 10, 8, 6, 4, 2, 0, −2.

2. The largest is 10 utils, for the 1st unit.

AnswerA · 6 units, where total utility is at its maximum

1. With no price, the only question is satisfaction: he takes units until MU reaches 0.

2. MU is 0 at the 6th unit (TU 30); the 7th would cut TU to 28.

AnswerC · 30 utils

1. Read the MU of each of the first 5 units: 10, 8, 6, 4, 2.

2. TU = 10 + 8 + 6 + 4 + 2 = 30 utils.

AnswerB · 37 utils

1. TU₆ = TU₅ + MU₆ = 40 + (−3) = 37 utils.

2. A negative MU pulls total utility down.

AnswerB · Both A and R are true, but R is not the correct explanation of A.

1. A is true: while MU stays positive, each unit still adds to TU.

2. R is true too, but it does not explain A; the reason for A is that MU is still above zero.

AnswerB · Only II

1. I is false: TU from no units is zero.

2. II is true: MU₁ = TU₁ − TU₀ = TU₁ − 0 = TU₁.

AnswerB · as more units of a good are consumed, the utility from each extra unit falls

1. Each successive unit satisfies a want that is already partly met, so it adds less.

2. TU keeps rising while MU is positive; it is MU that diminishes.

AnswerB · The marginal utility curve

1. Diminishing MU means each unit's MU is below the one before: a falling MU curve.

2. The TU curve still rises until saturation.

AnswerD · the units are consumed one after another without a long gap, and are of the same size and quality

1. If there were a long gap, the want would return and MU would not fall.

2. If units differed in size or quality, the comparison would not be fair.

AnswerA · A thirsty person enjoys the first glass of water more than the third

1. The first glass meets the strongest thirst; each later glass adds less satisfaction.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. A is the law of diminishing marginal utility, which holds under its assumptions.

2. R is the basis of the law: as a want gets more and more satisfied, extra units matter less, so R explains A.

AnswerA · Only I

1. I is true: because each extra unit is worth less, a consumer buys more only at a lower price.

2. II is false: cardinal analysis assumes the marginal utility of money stays constant.

AnswerD · A collector who wants each new stamp more as the collection nears completion

1. For a collector, the stamp that completes a set can matter more than the earlier ones.

2. The other three are textbook cases where each extra unit adds less.

AnswerD · A is false, but R is true.

1. A is false: with a week's gap the want returns, so the law need not hold.

2. R is true and is the assumption that A breaks.

AnswerC · Both I and II

1. Both are standard assumptions of the law.

2. A change in tastes or irrational behaviour would break the steady fall in MU.

AnswerD · marginal utility would not fall in this way, because an assumption of the law is broken

1. The law assumes continuous consumption. After a day, the desire for tea returns.

2. So each day's cup can give about as much satisfaction as the first.

AnswerC · The 6th unit

1. MU runs 25, 20, 15, 10, 5, 0 for units 1 to 6.

2. So the 6th unit adds nothing: that is where TU is at its maximum.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. R spells out how diminishing MU leads to a downward-sloping demand curve, so it explains A.

AnswerB · Only II

1. I is false: TU falls after saturation but stays positive for a long while; nothing forces it below zero.

2. II is true: MU reaches zero at the point of saturation.

AnswerB · gets the most satisfaction from his income, and has no reason to change his purchases

1. Equilibrium is a position of rest: satisfaction is as high as the income and prices allow.

AnswerC · MUₓ ÷ Pₓ = MUₘ, the marginal utility of a rupee

1. The last rupee spent on X must give as much utility as a rupee kept: MUₓ ÷ Pₓ = MUₘ.

2. With MU in rupees, this becomes MU of the last unit = its price.

AnswerC · 4 units

1. He buys a unit as long as its MU (in ₹) is at least the price.

2. The 4th unit's MU is ₹15 = price; the 5th gives only ₹10 < ₹15. So he buys 4.

AnswerC · It rises from 3 to 5 units

1. At ₹20 he stops where MU = 20: the 3rd unit.

2. At ₹10 he goes on to the 5th unit, where MU = 10. A lower price, a larger quantity: the law of demand.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. Because MU diminishes, an extra unit past that point is worth less than its price, which is why he stops: R explains A.

AnswerD · constant

1. Money is the measuring rod of utility, so its own utility per rupee is assumed not to change.

AnswerD · buy more of the good

1. The last unit is worth ₹12 to him but costs only ₹10, so another unit is still a gain.

2. He goes on until MU falls to ₹10, the price.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. A is true: the last unit is worth less than it costs.

2. R is true and explains how cutting back restores MU = price: with fewer units, the last one has a higher MU.

AnswerA · Only I

1. I is true: with a higher price he stops at an earlier unit, where MU is higher.

2. II is false: price does not change the utility a unit gives.

AnswerB · ₹50

1. At ₹25 he buys up to the unit whose MU is ₹25: the 2nd unit.

2. Spending = 2 × ₹25 = ₹50.

AnswerA · Keep buying the same quantity: he is in equilibrium

1. MU in rupees = price is the one-good equilibrium condition.

2. Any change would lower his net satisfaction.

AnswerB · ₹15

1. Willing to pay for 3 units = 30 + 25 + 20 = ₹75.

2. Actually pays 3 × ₹20 = ₹60. The difference is ₹75 − ₹60 = ₹15.

AnswerB · buy more of X, which lowers MUₓ until the two are equal

1. A rupee spent on X now gives more utility than a rupee kept, so spending more on X raises satisfaction.

2. As he buys more, MUₓ falls (diminishing MU) until MUₓ ÷ Pₓ = MUₘ.

AnswerB · Yes, because MUₓ ÷ Pₓ = 24 ÷ 6 = 4 = MUₘ

1. Utility per rupee from X = 24 ÷ 6 = 4 utils.

2. That equals the utility of a rupee kept, so the condition MUₓ ÷ Pₓ = MUₘ holds.

AnswerD · A is false, but R is true.

1. A is false: TU would be highest at MU = 0, but the consumer stops earlier, where MU = price, because money has other uses.

2. R is true.

AnswerD · ₹30 → 1, ₹25 → 2, ₹20 → 3, ₹15 → 4, ₹10 → 5

1. At each price he buys up to the unit whose MU equals that price.

2. So the MU schedule in rupees is his demand schedule: higher price, fewer units.

AnswerA · the marginal utility per rupee is the same for both goods

1. Condition: MUₓ ÷ Pₓ = MUᵧ ÷ Pᵧ = MUₘ, with the whole income spent.

2. It is the utility per rupee that must be equal, not the utility itself.

AnswerD · 3 units of X and 4 units of Y

1. MU per rupee for X: 20/4, 16/4, 12/4, … = 5, 4, 3, 2, 1. For Y: 12/2, 10/2, 8/2, … = 6, 5, 4, 3, 2.

2. At 3 X and 4 Y both ratios are 3, and spending = 3 × ₹4 + 4 × ₹2 = ₹20, the whole income.

AnswerA · 2 units of X and 3 units of Y

1. At 2 X the ratio is 16/4 = 4; at 3 Y it is 8/2 = 4. The ratios are equal.

2. Spending = 2 × ₹4 + 3 × ₹2 = ₹14, the whole income.

AnswerC · The 1st unit of Y, which gives 6 utils per rupee against 4 for the 2nd unit of X

1. Compare utility per rupee, not utility: the 2nd X gives 16 ÷ 4 = 4; the 1st Y gives 12 ÷ 2 = 6.

2. Each rupee buys more satisfaction in Y, so Y comes first.

AnswerB · spend more on X and less on Y

1. A rupee moved from Y to X gains more utility than it loses.

2. As he buys more X its MU falls, and as he buys less Y its MU rises, until the two ratios are equal.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. Because what matters is utility per rupee, a cheap good with lower MU can still be the better buy: R explains A.

AnswerA · A-II, B-IV, C-I, D-III

1. TU adds up all units; MU is the addition from one more.

2. Saturation is where MU reaches zero and TU peaks; the equi-marginal condition equalises MU per rupee.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. R states why the law earns that name, so R explains A.

AnswerD · A is false, but R is true.

1. A is false: with income left, buying more of both raises satisfaction.

2. R is true and is the condition A ignores.

AnswerC · Both I and II

1. MUₓ ÷ Pₓ = 20 ÷ 5 = 4, so MUₘ = 4 and II is true.

2. MUᵧ ÷ 10 must also be 4, so MUᵧ = 40 and I is true.

AnswerC · No: X gives 5 utils per rupee and Y gives 4, so he should buy more X

1. MUₓ ÷ Pₓ = 10 ÷ 2 = 5; MUᵧ ÷ Pᵧ = 12 ÷ 3 = 4.

2. The ratios are unequal and X's is higher, so shifting spending from Y to X raises satisfaction.

AnswerA · 2 utils

1. ₹26 buys 4 X and 5 Y: 4 × ₹4 + 5 × ₹2 = ₹26.

2. There MUₓ ÷ Pₓ = 8 ÷ 4 = 2 and MUᵧ ÷ Pᵧ = 4 ÷ 2 = 2, so MUₘ = 2 utils.

AnswerB · MUₓ ÷ Pₓ falls below MUᵧ ÷ Pᵧ, so he buys less of X

1. A higher Pₓ lowers the utility per rupee from X.

2. X is now a worse use of money than Y, so he cuts his purchase of X: the law of demand.

AnswerA · Only I

1. I is true: the equal-ratio condition is applied together with the whole income being spent.

2. II is false in general: MU per rupee is equal; MUs themselves are equal only if prices are equal.

AnswerD · A is false, but R is true.

1. A is false: with Pₓ = ₹4 and Pᵧ = ₹2, a consumer can well be in equilibrium buying 3 X and 4 Y, unequal quantities.

2. R is the true condition.

AnswerA · Only I

1. I is true: X now gives more utility per rupee, so he shifts spending towards it.

2. II is false: a lower Pₓ raises MUₓ ÷ Pₓ.

AnswerB · 3 units of X and 1 unit of Y

1. With both prices at ₹4, X's ratios are 5, 4, 3, 2, 1 and Y's are 3, 2.5, 2, 1.5, 1.

2. At 3 X and 1 Y both ratios are 3, and spending = 3 × ₹4 + 1 × ₹4 = ₹16.

AnswerC · A-III, B-I, C-IV, D-II

1. Equal ratios at 5: 1 X, 2 Y costs ₹4 + ₹4 = ₹8. At 4: 2 X, 3 Y costs ₹14.

2. At 3: 3 X, 4 Y costs ₹20. At 2: 4 X, 5 Y costs ₹26.