H.S First Year Economics PART-A Introductory Microeconomics Unit -2 Consumer's Equilibrium and Demand Important Questions Answers 2024
AHSEC Class 11 Economics Solution 2024
Unit -2 Consumer's Equilibrium and Demand
Topic: Concept of Utility
1. What is utility in economics?
Utility refers to the satisfaction or usefulness that a consumer derives from consuming a particular good or service.
2. Define marginal utility.
Marginal utility is the additional utility gained from consuming one additional unit of a good or service.
3. Explain total utility.
Total utility represents the overall satisfaction a consumer obtains from consuming a certain quantity of a good or service.
Topic: Consumer's Equilibrium
1. What is the law of diminishing marginal utility?
According to the law of diminishing marginal utility, as a consumer consumes more units of a good, the additional satisfaction or utility derived from each additional unit diminishes.
2. How is consumer's equilibrium achieved?
Consumer's equilibrium is achieved when a consumer maximizes their satisfaction or utility, given their budget constraint and the prices of goods and services.
3. What are the conditions for consumer's equilibrium?
The conditions for consumer's equilibrium are:
- The consumer spends their entire budget.
- The marginal utility per unit of money spent on each good is equal.
- The marginal utility per unit of money spent on a good is equal to the marginal utility per unit of money spent on all other goods.
Topic: Consumer's Equilibrium using Indifference Curve
1. What is an indifference curve?
An indifference curve is a graphical representation showing different combinations of two goods that provide the consumer with the same level of satisfaction or utility.
2. Explain an indifference map.
An indifference map is a set of indifference curves that represents various levels of utility for a consumer.
3. What is a budget set and budget line?
A budget set is the set of all possible combinations of goods that a consumer can afford, given their budget and the prices of the goods. The budget line is a graphical representation of the budget set, showing the different combinations of goods that can be purchased at a given budget.
Topic: Demand
1. Define demand in economics.
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific period.
2. What is the law of demand?
The law of demand states that, ceteris paribus (all other things being equal), as the price of a good or service increases, the quantity demanded decreases, and vice versa.
3. How is a demand curve derived from indifference curves and budget constraints?
By analyzing the consumer's preferences and budget constraints, indifference curves and budget constraints can be used to derive the consumer's demand curve for a specific good or service.
Topic: Types of Goods
1. What are normal goods?
Normal goods are goods for which the demand increases as consumer income increases. In other words, as consumers' income rises, they tend to buy more of these goods.
2. Define inferior goods.
Inferior goods are goods for which the demand decreases as consumer income increases. As consumers' income rises, they tend to shift towards purchasing higher-quality substitutes, leading to a decrease in demand for inferior goods.
3. What is a Giffen good?
A Giffen good is a rare type of inferior good that defies the typical demand relationship. In the case of a Giffen good, as the price of the good increases, the quantity demanded also increases, violating the law of demand. This situation occurs when the income effect dominates the substitution effect.
Topic: Market Demand
1. What is market demand?
Market demand refers to the total quantity of a good or service that all consumers in a particular market are willing and able to purchase at various prices during a specific period.
2. Differentiate between individual demand and market demand.
Individual demand refers to the quantity of a good or service that a single consumer is willing and able to purchase at various prices. Market demand, on the other hand, represents the sum of the individual demands of all consumers in the market.
3. Explain the concept of movement along a demand curve.
A movement along a demand curve occurs when the quantity demanded changes in response to a change in the price of the good, while other factors remain constant. This movement reflects a change in quantity demanded, not a shift in the entire demand curve.
Topic: Price Elasticity of Demand
1. What is price elasticity of demand?
Price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price. It indicates the degree to which demand is elastic or inelastic.
2. What factors affect price elasticity of demand?
Several factors influence the price elasticity of demand, including the availability of substitutes, the necessity of the good, the proportion of income spent on the good, and the time period under consideration.
3. How is the price elasticity of demand measured?
The price elasticity of demand can be measured using various methods, including the percentage method (percentage change in quantity demanded divided by the percentage change in price) and the geometric method (based on the slope of the demand curve).
Topic: Elasticity and Expenditure
1. How does price elasticity of demand affect total expenditure?
The relationship between price elasticity of demand and total expenditure depends on the elasticity of demand. If demand is elastic (elasticity greater than 1), a decrease in price will lead to a proportionally larger increase in quantity demanded, resulting in an increase in total expenditure. Conversely, if demand is inelastic (elasticity less than 1), a decrease in price will lead to a proportionally smaller increase in quantity demanded, causing total expenditure to decrease.
2. Explain the concept of income elasticity of demand.
Income elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in consumer income. It helps classify goods as normal (positive income elasticity), inferior (negative income elasticity), or luxury goods (income elasticity greater than 1).
3. What are cross-price elasticities of demand?
Cross-price elasticities of demand measure the responsiveness of the quantity demanded of one good to a change in the price of another good. It helps determine whether two goods are substitutes (positive cross-price elasticity) or complements (negative cross-price elasticity).
Topic: Movement along and Shifts in Demand Curve
1. What causes a movement along the demand curve?
A movement along the demand curve occurs when there is a change in the quantity demanded of a good or service in response to a change in its own price. Other factors, such as income or prices of related goods, remain constant in this scenario.
2. What factors can cause a shift in the demand curve?
Several factors can cause a shift in the demand curve, including changes in consumer income, prices of related goods (substitutes and complements), consumer preferences and tastes, population changes, advertising and marketing efforts, and government policies.
3. Differentiate between a shift to the right and a shift to the left in the demand curve.
A shift to the right in the demand curve indicates an increase in demand, meaning consumers are willing and able to purchase more of the good or service at each price level. Conversely, a shift to the left in the demand curve signifies a decrease in demand, indicating that consumers are willing and able to purchase less of the good or service at each price level.
Topic: Measurement of Price Elasticity of Demand
1. Explain the percentage method of measuring price elasticity of demand.
The percentage method calculates the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price. The formula is:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
2. What is the geometric measure of price elasticity of demand?
The geometric measure of price elasticity of demand uses the slope of the demand curve to determine elasticity. It involves measuring the change in quantity demanded relative to the change in price at a specific point on the demand curve.
3. How do you interpret the value of price elasticity of demand?
The value of price elasticity of demand indicates the responsiveness of quantity demanded to changes in price. If the elasticity is greater than 1 (elastic demand), a change in price will result in a proportionally larger change in quantity demanded. If the elasticity is less than 1 (inelastic demand), a change in price will lead to a proportionally smaller change in quantity demanded. And if the elasticity is equal to 1 (unitary elasticity), the percentage change in quantity demanded is equal to the percentage change in price.
Topic: Elasticity and Expenditure
1. How does price elasticity of demand affect total expenditure?
Price elasticity of demand directly influences total expenditure. If demand is elastic (elasticity greater than 1), a decrease in price will lead to a proportionally larger increase in quantity demanded. As a result, total expenditure will increase. Conversely, if demand is inelastic (elasticity less than 1), a decrease in price will cause a proportionally smaller increase in quantity demanded, leading to a decrease in total expenditure.
2. What is income elasticity of demand?
Income elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in consumer income. It helps determine whether a good is a normal good (positive income elasticity), an inferior good (negative income elasticity), or a luxury good (income elasticity greater than 1).
3. How does income elasticity of demand affect consumer behavior?
Income elasticity of demand provides insights into consumer behavior. For normal goods (positive income elasticity), as income increases, the demand for these goods also increases, indicating that they are normal necessities or normal luxuries. For inferior goods (negative income elasticity), as income rises, the demand for these goods decreases, as consumers tend to shift towards higher-quality substitutes. Luxury goods (income elasticity greater than 1) experience a disproportionate increase in demand as income rises, as they are considered luxury items.
4. Explain cross-price elasticity of demand.
Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It helps determine whether two goods are substitutes (positive cross-price elasticity) or complements (negative cross-price elasticity). A positive cross-price elasticity indicates that an increase in the price of one good leads to an increase in the demand for the other, while a negative cross-price elasticity suggests that an increase in the price of one good leads to a decrease in the demand for the other.
5. How does cross-price elasticity of demand impact pricing strategies?
Cross-price elasticity of demand is crucial for determining pricing strategies. If two goods are substitutes and have a positive cross-price elasticity, a decrease in the price of one good will likely lead to an increase in demand for the other. Therefore, pricing strategies need to consider the price dynamics of substitute goods. Similarly, if two goods are complements and have a negative cross-price elasticity, changes in the price of one good will impact the demand for the other. Pricing decisions for complementary goods must take into account the interdependence of prices and demand.
Topic: Measurement of Price Elasticity of Demand
1. What are some factors that affect the price elasticity of demand?
Several factors influence the price elasticity of demand, including the availability of substitutes, the necessity of the good or service, the proportion of income spent on the good, the time period under consideration, and the specific characteristics of the market and consumer preferences.
2. What does it mean when price elasticity of demand is elastic?
When the price elasticity of demand is elastic (greater than 1), it indicates that the quantity demanded is highly responsive to changes in price. A small change in price leads to a relatively larger change in quantity demanded.
3. What does it mean when price elasticity of demand is inelastic?
When the price elasticity of demand is inelastic (less than 1), it suggests that the quantity demanded is not very responsive to changes in price. Even significant changes in price result in only minor changes in quantity demanded.
Topic: Market Demand
1. What factors can cause a shift in the market demand curve?
A shift in the market demand curve can be caused by factors such as changes in population, consumer preferences and tastes, income levels, prices of related goods, advertising and promotional activities, and changes in cultural or social factors that affect consumer behavior.
2. Differentiate between a movement along the market demand curve and a shift of the entire curve.
A movement along the market demand curve occurs when there is a change in quantity demanded due to a change in price, while other factors remain constant. On the other hand, a shift of the market demand curve occurs when there is a change in demand due to factors other than price, such as income or consumer preferences.
3. How are individual demand curves aggregated to obtain the market demand curve?
Individual demand curves are aggregated by summing up the quantities demanded by each individual consumer at each price level. This allows us to determine the total quantity demanded in the market at different price points.
Topic: Elasticity and Expenditure
1. What is the relationship between price elasticity of demand and revenue?
The relationship between price elasticity of demand and revenue depends on the elasticity coefficient. If demand is elastic (elasticity greater than 1), a decrease in price will result in an increase in total revenue, as the percentage increase in quantity demanded outweighs the percentage decrease in price. Conversely, if demand is inelastic (elasticity less than 1), a decrease in price will lead to a decrease in total revenue, as the decrease in price is not offset by a significant increase in quantity demanded.
2. How is cross-price elasticity of demand used in marketing and product positioning?
Cross-price elasticity of demand is used by marketers to understand the relationship between goods and their substitutes or complements. By analyzing the cross-price elasticity, marketers can determine how changes in the price of related goods impact the demand for their product. This information helps with pricing strategies, product positioning, and identifying potential market opportunities.
3. What is the concept of elasticity of supply?
Elasticity of supply measures the responsiveness of the quantity supplied of a good or service to changes in its price. It indicates how producers adjust their supply quantities in response to price changes. The elasticity of supply can be influenced by factors such as production timeframes, availability of inputs, and the ability to adjust production levels.
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