CBSE Class 12 Economics HOTs Theory of Consumer Behaviour

Question. Which of the following statement regarding utility is not true?
1. It is satisfying of a commodity
2. A utility is always miserable
3. It helps a consumer to make choices
4. It is purely a subjective entity
Answer : A utility is always miserable

Question. How is total utility derived from the marginal utility?
Answer : The total utility is the total sum of marginal utilities of different unit of goods.
TUn+MU1+MU2+MU3———–MUn

Question. Which curve shows the various combination of two products that give the same amount of satisfaction to the consumer?
Answer : Indifference Curve

Question. Define Utility.
Answer : The “Utility” in economics determines the satisfaction received or expected to be acquired from the consumption of product and services.

Question. What will be the MU when TU is maximum?
Answer : The MU will be zero when TU is maximum.

Question. Which direction the indifference curve slope?
Answer : The indifference curve slopes downward to the right.

Question. What does the law of diminishing utility say?
Answer : The law of diminishing utility says any addition in the consumption causes a decrease in total utility.

Question. The quantity demanded of a good at a price of Rs. 10 per unit is 40 units. Its price elasticity of demand is -2. Its price falls by Rs, 2/- per unit. Calculate its quantity demanded at the new price.
Answer : 56 units.

Question. State the proportionate /percentage methods of evaluating price elasticity of demand?
Answer : Proportionate / percentage method:
Ed = % change in Quantity demanded = ▲Q/Q x 100 OR = ▲Q/▲P x P/Q
% change in price ▲P/Px100

Question. Explain four determinants of demand for a commodity.
Answer : The four determinants of demand for a commodity are mentioned below.
• Price of Commodity- When the cost of the good increases the demands of it decreases and vice-versa.
• Income of the consumer- When the income of a customer increases, the demand for normal goods also increases and vice-versa. • Price of related goods- In a complementary product, demand increases with the decrease in the price of complementary goods. In terms of a substitute, the demand for goods decreases with the fall in the price of other substitute goods.
• Taste and preference of customer- With the change in people’s taste and liking demand increases and with the decrease in taste demand decreases.

Question. Determine how the following changes (or shifts) will affect market demand curve for a product.
(a) A new steel plant comes up in Jharkhand people who were previously unemployed in the area are now employed. How will this affect the demand for colour T.V. and Black and White T.V. in the region?
(b) In order to encourage tourism in Goa. The Government of India suggests Indian Airlines to reduce air fare to Goa from the four major cities of Chennai, Kolkata, Mumbai and New Delhi. If the Indian Airlines reduces the fare to Goa, How will this affect the market demand curve for air travel to Goa?
(c) There are train and bus services between New Delhi and Jaipur. Suppose that the train fare between the two cities comes down. How will this affect demand curve for bus travel between the two cities?
Answer : (a) There will be rightward shift in market demand curve for colour and Black and White T.V. This is because of increase of income of the people due to employment in the new steel plant.
(b) The demand for travel to Goa will expand in response to reduction in the air fare. However, this will be reflected by a movement along the demand curve. There will be no shifts in the demand curve.
(c) As train fare comes down the demand for bus travel will reduce. Demand curve for the bus travel will shift to the left showing less demand at the same price.

Question. If a good can be used for many purposes, the demand for it will be elastic. Why?
Answer : If a good can be used for many purposes , the demand for it will be more elastic because with a decrease in its price it is put to several uses and with a rise in its price it is withdrawn from its many existing uses. So that, there is a considerable change in demand in response to some change in price.

Question. “If a product price increases, a family’s spending on the product has to increase.” Defend or refute.
Answer : When product price increases, expenditure on the commodity will not increase in the situation when Ed>1 (elasticity of demand is greater than unity). It will increase only in situation when Ed<1. In a situation when Ed=1. Expenditure will remain constant, even when prices rise. 

Question. A dentist was charging Rs. 300 For a standard cleaning job and per month it used to generate TR is equal to Rs. 30,000. She has since last month increased the price of dental cleaning to Rs.350. As a result fewer customers are now coming for dental cleaning, but the TR is now Rs. 33,250 .From this , what can we conclude about the elasticity of demand for such a dental service?