Consumer Equilibrium Class 11 Important Questions

In my opinion, Consumer Equilibrium is the most important chapter of Microeconomics. Here are the consumer equilibrium class 11 important questions with answers.

One Mark Questions

1. What is utility?

Ans: Utility is the satisfaction or pleasure derived from consuming a good or service.

2. What is total utility (TU)?

Ans: Total Utility (TU) is the sum of the utility derived from all units of a commodity consumed.

3. What is marginal utility (MU)?

Ans: Marginal Utility (MU) is the additional utility gained from consuming one more unit of a good.

4. State the formula for marginal utility.

Ans: MUn=TUn−TUn−1MU_n = TU_n – TU_{n-1}

where MU_n is the marginal utility of the n-th unit and TU is total utility.

5. What is the Law of Diminishing Marginal Utility?

Ans: The law states that as more units of a good are consumed, the additional satisfaction (MU) decreases.

6. When is total utility (TU) maximum?

Ans: TU is maximum when marginal utility (MU) is zero.

7. What happens to marginal utility when total utility starts decreasing?

Ans: Marginal Utility (MU) becomes negative.

8. Define consumer equilibrium.

Ans: A consumer is in equilibrium when they maximize total satisfaction within their budget constraint.

9. What is the condition for consumer equilibrium in the case of one commodity?

Ans: MUx=PxMU_x = P_x

(A consumer buys until marginal utility equals price.)

10. What is the condition for consumer equilibrium when consuming two goods (X & Y)?

Ans: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}

(The marginal utility per rupee must be equal for both goods.)

11. What is an indifference curve?

Ans: An indifference curve shows combinations of two goods that give the same level of satisfaction to a consumer.

12. Why does an indifference curve slope downward?

Ans: Because a consumer must give up one good to gain more of another while maintaining the same satisfaction level.

13. Why is an indifference curve convex to the origin?

Ans: Due to diminishing marginal rate of substitution (MRS)—as more of one good is consumed, less of the other is given up.

14. What is an indifference map?

Ans: An indifference map is a set of multiple indifference curves, each representing different levels of satisfaction.

15. What does a higher indifference curve indicate?

Ans: A higher indifference curve represents higher utility and greater satisfaction.

16. What is the budget line equation?

Ans: PX×X+PY×Y=IncomeP_X \times X + P_Y \times Y = \text{Income}

17. What is the slope of the budget line?

Ans: The slope of the budget line is the ratio of the price of two goods: PXPY\frac{P_X}{P_Y}

18. What happens to the budget line when income increases?

Ans: The budget line shifts outward (rightward) but remains parallel.

19. What is the Marginal Rate of Substitution (MRS)?

Ans: MRS is the rate at which a consumer substitutes one good for another while maintaining the same satisfaction level.

20. Why does MRS diminish?

Ans: Because as more of one good is consumed, its additional satisfaction declines, leading the consumer to give up less of the other good.

3/4 Marks Questions

1. Define the following terms:

i) Marginal Utility (MU):
Marginal utility refers to the additional utility (satisfaction) a consumer derives from consuming one more unit of a good or service. It is calculated as:
MUn=TUn−TUn−1MU_n = TU_n – TU_{n-1}
where TU_n is the total utility after consuming n units, and TU_{n-1} is the total utility after consuming (n-1) units.

ii) Total Utility (TU):
Total utility is the total satisfaction a consumer gets from consuming a given quantity of a good or service. It is the sum of the marginal utilities of all units consumed.

iii) Initial Utility:
Initial utility refers to the utility or satisfaction derived from consuming the first unit of a good. It is the starting point of total utility calculation.

2. Define marginal utility. State the law of diminishing marginal utility.

Marginal Utility:
As defined earlier, marginal utility is the additional satisfaction obtained from consuming one more unit of a commodity.

Law of Diminishing Marginal Utility:
This law states that as more and more units of a commodity are consumed continuously, the additional satisfaction (marginal utility) derived from each successive unit decreases.

Assumptions of the Law:

1. Consumption takes place continuously.
2. The units of the commodity are homogeneous.
3. The consumer’s tastes and preferences remain constant.
4. The consumer is rational.

Example:
If a person eats slices of pizza, the first slice gives maximum satisfaction, the second gives slightly less, and by the fourth or fifth slice, satisfaction may decrease or even become negative.

3. Explain the various points of relationship between marginal utility and total utility with help of schedule and diagram.

The relationship between Total Utility (TU) and Marginal Utility (MU) can be explained as follows:

1. When MU is positive, TU increases.
2. When MU is zero, TU is maximum.
3. When MU is negative, TU starts decreasing.

Utility Schedule

Diagram:

• X-axis: Quantity of commodity
• Y-axis: Utility
• TU Curve: Rises, reaches a maximum, then falls.
• MU Curve: Slopes downward, becomes zero, then negative.

Explanation:

• Initially, as consumption increases, TU rises and MU decreases.
• When TU is at its maximum (30), MU becomes zero.
• If consumption continues, TU starts declining, and MU becomes negative.

4. How does a consumer reach equilibrium position when he is buying only one commodity? Explain with the help of utility schedule.

A consumer is in equilibrium when he maximizes his satisfaction while spending a given amount of money. According to the Law of Equi-Marginal Utility, the condition for consumer equilibrium is: MU=Price(MUx=Px)MU = Price \quad (MU_x = P_x)

Utility Schedule Example (Price = ₹2 per unit)

Explanation:

• The consumer will buy units as long as MU ≥ Price (₹2).
• At the 4th unit, MU = Price (₹2), achieving equilibrium.
• Beyond this, MU < Price, so the consumer stops purchasing.

Thus, the consumer attains maximum satisfaction at the 4th unit and does not consume further.

5. A consumer consumes only two goods X and Y. State and explain the conditions of consumer’s equilibrium with the help of utility analysis.

A consumer consuming two goods, X and Y, attains equilibrium when he maximizes satisfaction within his budget.

The condition for equilibrium is: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}

This means that the marginal utility per rupee spent on both goods must be equal.

Conditions of Consumer Equilibrium:

1. Equal Marginal Utility Per Rupee Spent:
   The consumer adjusts consumption until the last rupee spent on each good gives equal satisfaction.
2. Budget Constraint:
   The consumer should spend within the given income: PX×QX+PY×QY=BudgetP_X \times Q_X + P_Y \times Q_Y = Budget

Example Schedule

At MUx/Px = MUy/Py = 4, the consumer is in equilibrium.

6. Define the following terms:

i) Indifference Curve:
An indifference curve shows all combinations of two goods that give the same level of satisfaction to the consumer. The consumer is indifferent between these combinations.

ii) Indifference Map:
An indifference map is a set of multiple indifference curves, each representing a different level of satisfaction. Higher curves indicate higher satisfaction levels.

iii) Marginal Rate of Substitution (MRS):
MRS refers to the rate at which a consumer is willing to give up one good to obtain an additional unit of another, while maintaining the same level of satisfaction. MRS=Change in Good YChange in Good XMRS = \frac{\text{Change in Good Y}}{\text{Change in Good X}}

Example: If a consumer gives up 2 units of Y for 1 more unit of X, MRS = 2.

7. Explain the law of diminishing marginal utility with the help of utility schedule.

Statement of the Law:
The Law of Diminishing Marginal Utility states that as a consumer consumes more units of a commodity, the additional satisfaction (MU) from each successive unit decreases.

Utility Schedule Example

Explanation:

• Initially, TU increases and MU decreases.
• At 6th unit, TU is maximum (30) and MU is zero (consumer is satisfied).
• Beyond this, MU becomes negative, meaning extra consumption leads to dissatisfaction.

8. Discuss the meaning of budget line with a hypothetical schedule and diagram.

Meaning:
A budget line represents all possible combinations of two goods a consumer can buy with a given income and prices.

Equation: PX×X+PY×Y=Consumer’s IncomeP_X \times X + P_Y \times Y = \text{Consumer’s Income}

Hypothetical Schedule

Diagram Explanation:

• X-axis: Quantity of Good X
• Y-axis: Quantity of Good Y
• The budget line slopes downward from left to right, showing the trade-off between X and Y.
• If the consumer spends the entire budget, he lies on the budget line.
• If he spends less, he is inside the budget line.

9. Explain the relationship between total utility and marginal utility.

1. When MU is positive, TU increases.
2. When MU is zero, TU is maximum.
3. When MU is negative, TU starts decreasing.

Utility Schedule Example

Diagram Explanation:

• TU Curve: Rises, reaches a maximum, then falls.
• MU Curve: Slopes downward, becomes zero, then negative.

Key Takeaways:

• As more units are consumed, TU increases at a decreasing rate.
• When MU = 0, TU is maximum.
• Beyond this, TU declines and MU becomes negative (disutility).

Consumer Equilibrium Notes Class 11 Microeconomics

10. Define an indifference curve. Explain why an indifference curve is downward sloping from left to right.

Definition of Indifference Curve:
An indifference curve is a graphical representation showing different combinations of two goods that provide the same level of satisfaction to a consumer.

Why is an Indifference Curve Downward Sloping?

An indifference curve slopes downward from left to right because:

1. If a consumer wants more of one good (X), they must give up some of the other good (Y) to maintain the same satisfaction level.
2. The negative slope reflects the concept of Marginal Rate of Substitution (MRS), meaning the consumer substitutes one good for another while keeping the same utility.

11. What are monotonic preferences? Explain why an indifference curve to the right shows higher utility.

Monotonic Preferences:
A consumer has monotonic preferences when:

1. They always prefer more of a good to less.
2. If one bundle contains more of at least one good and no less of the other good, it is preferred.

Why Does a Rightward Indifference Curve Show Higher Utility?

• Higher indifference curves represent larger consumption bundles.
• More consumption means greater satisfaction, assuming both goods are desirable.
• The consumer prefers combinations on higher curves as they provide a higher level of satisfaction.

12. Define an indifference map. Explain why an indifference curve to the right shows higher utility level.

Definition of Indifference Map:
An indifference map is a set of multiple indifference curves, each representing a different satisfaction level.

• The higher the curve, the greater the satisfaction.

Why Does a Rightward Indifference Curve Show Higher Utility?

• A higher curve represents a bundle with more of at least one good.
• Since more is better, the consumer prefers higher curves.
• Indifference curves never intersect, as each curve corresponds to a unique satisfaction level.

13. A consumer consumes only two goods X and Y and is in equilibrium. Price of X rises. Explain the reaction of the consumer with the help of utility analysis.

If a consumer consumes two goods (X and Y) and is in equilibrium, the condition for consumer equilibrium is: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}

When Price of X (P_X) Rises:

1. The ratio MUXPX\frac{MU_X}{P_X} falls, making X less attractive.
2. The consumer reduces the quantity of X consumed.
3. The consumer increases consumption of Y to maintain equilibrium.

Reaction Process:

• As P_X increases, MU_X/P_X decreases.
• To restore equilibrium, the consumer reduces consumption of X, which raises MU_X.
• The consumer substitutes X with Y, increasing MU_Y/P_Y.

Result:

• The consumer adjusts consumption to balance satisfaction levels.
• This reaction follows the Law of Equi-Marginal Utility.

14. Explain the distinction between budget set and budget line.

Example:

• Budget Set: If income = ₹100, goods cost ₹20 (X) and ₹10 (Y), then possible purchases are (1X, 8Y), (2X, 6Y), etc.
• Budget Line: Represents only the highest combinations that use all ₹100.

15. Define marginal rate of substitution. Explain why is an indifference curve convex?

Definition of Marginal Rate of Substitution (MRS):
MRS is the rate at which a consumer substitutes one good for another, while maintaining the same satisfaction level. MRS=Change in Good YChange in Good XMRS = \frac{\text{Change in Good Y}}{\text{Change in Good X}}

Why is an Indifference Curve Convex?

1. Diminishing MRS:
   • As the consumer substitutes more of X for Y, they give up less of Y for additional X.
   • MRS decreases as X increases.
2. Rational Consumer Behavior:
   • Consumers prefer balanced consumption of both goods.
   • They do not want to sacrifice too much of one good for the other.
3. Convex Shape Reflects Diminishing MRS:
   • Initially, the consumer gives up more of Y for extra X.
   • As X increases, they reduce the amount of Y sacrificed, making the curve convex to the origin.

6 Marks Questions

1. Explain consumer’s equilibrium, in case of a single commodity with the help of a utility schedule?

Meaning of Consumer Equilibrium

A consumer is in equilibrium when they maximize their total satisfaction given their income and the price of the commodity.

Condition for Consumer Equilibrium

In the case of a single commodity, a consumer reaches equilibrium when: MUX=PXMU_X = P_X

Where:

• MUXMU_X = Marginal Utility of good X
• PXP_X = Price of good X

Additionally, the marginal utility must decrease as more units are consumed (Law of Diminishing Marginal Utility).

Utility Schedule for Consumer Equilibrium

Assume a consumer buys a commodity X at a price of ₹5 per unit. The following table shows Total Utility (TU) and Marginal Utility (MU):

Explanation of the Table

• The consumer continues to buy as long as MUX>PXMU_X > P_X.
• At 4th unit, MUX=PX=5MU_X = P_X = 5, meaning the consumer is in equilibrium.
• Beyond this point, MUX<PXMU_X < P_X, meaning the consumer should stop buying.

Graphical Representation

• X-axis: Quantity of Good X
• Y-axis: Marginal Utility (MU) and Price (P)
• MU Curve: Slopes downward due to the Law of Diminishing Marginal Utility.
• Equilibrium Point: Where MU curve intersects the price line (P=5).

Conclusion

A consumer attains equilibrium when the marginal utility of the last unit consumed equals its price. If MU > P, the consumer buys more; if MU < P, they buy less. Thus, 4 units of X maximize total satisfaction at MU = Price (₹5).

2. A consumer consumes only two goods. Explain equilibrium with the help of utility approach.

Meaning of Consumer Equilibrium

A consumer consuming two goods (X and Y) is in equilibrium when they allocate their income in such a way that the last rupee spent on each good gives the same level of satisfaction.

Conditions for Consumer Equilibrium in Case of Two Goods

The consumer attains equilibrium when: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}

Where:

• MUXMU_X = Marginal Utility of Good X
• MUYMU_Y = Marginal Utility of Good Y
• PXP_X = Price of Good X
• PYP_Y = Price of Good Y

Additionally, the Law of Diminishing Marginal Utility must hold (MU decreases as consumption increases).

Utility Schedule for Consumer Equilibrium

Assume the consumer has ₹10 and can buy two goods: X and Y with the following data:

Explanation of the Table

• The consumer compares the marginal utility per rupee spent.
• The consumer buys more of the good with higher MU per rupee until the equilibrium condition holds.
• At equilibrium:

MUXPX=MUYPY=6\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y} = 6

• The consumer buys 3 units of X and 3 units of Y, maximizing satisfaction.

Graphical Representation

• X-axis: Quantity of Goods X and Y
• Y-axis: Marginal Utility per Rupee
• The equilibrium occurs where the MU/P ratios of both goods are equal.

Conclusion

A consumer consuming two goods reaches equilibrium when the MU per rupee spent on both goods is equal. If MU_X/P_X > MU_Y/P_Y, the consumer buys more of X and vice versa, until the equilibrium condition is met.

3. Explain the conditions of consumer’s equilibrium in case of:

(i) Consumer Equilibrium in Case of a Single Commodity

A consumer consuming one good (X) is in equilibrium when: MUX=PXMU_X = P_X

Conditions for Equilibrium

1. Marginal Utility Should Equal Price: The consumer will buy until the additional satisfaction (MU) from the last unit equals the price paid.
2. Law of Diminishing Marginal Utility Must Hold: As more units are consumed, MU decreases, ensuring equilibrium is achieved.

Utility Schedule for One Good

Explanation

• The consumer buys up to 4 units, where MU = Price (₹5).
• Beyond this, MU < Price, so buying more reduces satisfaction.

(ii) Consumer Equilibrium in Case of Two Commodities

A consumer consuming two goods (X and Y) is in equilibrium when: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}

Conditions for Equilibrium

1. Equalizing MU per Rupee Spent: The consumer adjusts consumption until the last rupee spent on both goods gives equal satisfaction.
2. Law of Diminishing Marginal Utility Holds: As more units of a good are consumed, MU falls, allowing the consumer to distribute spending efficiently.

Utility Schedule for Two Goods

Explanation

• The consumer buys 3 units of X and 3 units of Y where MU per rupee is equal.
• If MU_X/P_X > MU_Y/P_Y, the consumer buys more of X and vice versa.

Conclusion

• Single Commodity Equilibrium: MUX=PXMU_X = P_X
• Two Commodities Equilibrium: MUXPX=MUYPY\frac{MU_X}{P_X} = \frac{MU_Y}{P_Y}
• The consumer adjusts purchases to maximize total satisfaction within their budget constraint.

This was all about Consumer Equilibrium Class 11 Important Questions. If you have any doubts, you can either join my telegram channel or ask your doubts in the comments section.