030 Chapter Notes -Marginal Utility, Relative Price

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amitttmondal123

28 Jul 2022

School

ICFAI University - Raipur

Department

Economics

Course

030

Professor

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Document Summary

Changes the quantity demanded occur due to many factors. The main causes of changes in quantity demanded are discussed below: Law of diminishing marginal utility: other things remaining the same, if a consumer consumes a commodity continuously the marginal utility from the different units of the commodity decreases continuously. This is called law of diminishing marginal utility. Income effect: other things remaining constant, if the price of a commodity is decreased, the real income of the consumer is increased. This is because there exist some excess money in the hand of the customer even after the purchase of same amount of commodity which the customer purchases before the change in price. The amount of commodity the consumer purchases with excess money is called income effect. Substitution effect: relative price of any commodity is decreased due to fall in the price of that commodity.

Related Questions

Other things being equal, the law of demand suggests that as:

A. Demand for a commodity increase when the price of commodity increases

B. Demand for a commodity increases when the price of commodity decreases.

C. Demand increases due to an increase in consumer income.

D.When consumer expectations increase it will lead to a decrease in demand.

Other things remaining the same, what would happen to the supply of a particular commodity if the following changes occur?

The price of the commodity increases.

Government regulators outlaw the use of a technology that enables the good to be

produced at a significantly lower cost.

The prices of inputs used to produce the commodity decrease.

The price of a commodity that is a substitute in production increases.

Managers expect the price of the good to fall in the near future.

As the cost of capital rises, firms in the industry stop purchasing plant and equip-

ment, which allows depreciation to diminish the productive capacity in the indus- try.

What happens to demand when the following changes occur?

The price of the commodity rises.

Income decreases and the commodity is normal.

Income decreases and the commodity is inferior.

The price of a complement good increases.

The price of a substitute good decreases.

1. If marginal utility is negative, total utility is

a. Positive

b. Negative

c. Decreasing

d. Constant

e. Increasing

2. If utility-maximizing consumers face identical prices, they will have identical

a. Marginal utilities for each good

b. Ratio of marginal utilities for each good

c. Preferences

d. Ratios of total utilities for each good

e. Total utilities for each good

3. The substitution effect

a. Always increases quantity demanded of a good whose relative price has fallen

b. Is opposite in sign to the income effect for all normal goods

c. Is opposite in sign to the income effect for all normal goods

d. May cause demand curves to be upward sloping

e. Is always dominated by the income effect for normal goods

4. Demand curves for normal goods slope downward because

a. The substitution effect of a price change is greater than the income effect

b. Substitution and income effects work in the same direction

c. The income effect is always greater than the substitution effect

d. The income effect is always less than the substitution effect

e. None of the above

5. The idea that a consumer derives less additional satisfaction from consuming successive units of a good is called

a. Diminishing consumer surplus

b. The paradox of value

c. Diminishing marginal utility

d. Diminishing total value of consumption

e. Diminishing total utility

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030 Chapter Notes -Marginal Utility, Relative Price

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