Maharashtra Board Class 12 Economics Chapter 2 Utility Analysis Solutions

Utility Analysis Question Answer Class 12 Economics Chapter 2 Maharashtra Board

1. Complete the following statements by choosing the correct alternatives.

 

Question 1.In the law of diminishing marginal utility, Alfred Marshall assumes that marginal utility of money
(a) increases
(b) remains constant
(c) decreases
(d) rises and then falls
Answer:(b) remains constant
In simple words: Alfred Marshall's law of diminishing marginal utility assumes that the satisfaction derived from money itself remains constant, allowing us to measure the diminishing utility of other goods.

🎯 Exam Tip: Understanding the key assumptions of economic laws, like constant marginal utility of money, is crucial for answering multiple-choice questions accurately.

 

Question 2.As per the law of diminishing marginal utility, measurement of utility is assumed to be ..............
(a) ordinal
(b) cardinal
(c) both ordinal and cardinal
(d) none of the above
Answer:(b) cardinal
In simple words: The law of diminishing marginal utility assumes that utility can be measured numerically, which is known as cardinal measurement, allowing for direct comparison of satisfaction levels.

🎯 Exam Tip: Distinguish between cardinal and ordinal utility concepts, as this distinction is fundamental to classical economic theories like the law of DMU.

 

Question 3.MU of the commodity becomes negative when TU of a commodity is ..............
(a) rising
(b) constant
(c) falling
(d) zero
Answer:(c) falling
In simple words: Marginal utility becomes negative when consuming additional units of a good causes total utility to decrease, indicating dissatisfaction or disutility.

🎯 Exam Tip: Remember the relationship between Total Utility (TU) and Marginal Utility (MU)- when TU starts to fall, MU is always negative.

 

Question 4.Point of satiety means ..............
(a) TU is rising and MU is falling
(b) TU is falling and MU is negative
(c) TU is maximum and MU is zero
(d) MU is falling and TU is rising
Answer:(c) TU is maximum and MU is zero
In simple words: The point of satiety is reached when a consumer has consumed enough of a good that their total satisfaction (TU) is at its peak and consuming one more unit would yield no additional satisfaction (MU is zero).

🎯 Exam Tip: The point of satiety is a critical concept, representing the optimal consumption level where maximum satisfaction is achieved before disutility sets in.

 

Question 5.When MU is falling, TU is ..............
(a) rising
(b) falling
(c) not changing
(d) maximum
Answer:(a) rising
In simple words: As long as marginal utility is positive (even if falling), consuming more units will still add to total utility, causing total utility to continue rising, albeit at a diminishing rate.

🎯 Exam Tip: Graphing the TU and MU curves can help visualize this relationship; TU rises as long as MU is positive, and reaches its maximum when MU is zero.

 

2. Choose The Correct Option:

 

Question 1.

Group 'A'		Group 'B'
1. Time utility	(a)	Transportation
2. Place utility	(b)	Blood bank
3. Service utility	(c)	Mobile phone
4. Knowledge utility	(d)	Doctor
	(e)	Music

Options:
(1) 1 – d, 2 – b, 3 – a, 4 – c.
(2) 1 – b, 2 – a, 3 – d, 4 – c.
(3) 1 – a, 2 – b, 3 – e, 4 – d.
(4) 1 – b, 2 – c, 3 – d, 4 – e.
Answer:(2) 1 – b, 2 – a, 3 – d, 4 – c.
In simple words: This question matches different types of utility with their correct examples: Time utility with a blood bank, Place utility with transportation, Service utility with a doctor, and Knowledge utility with a mobile phone.

🎯 Exam Tip: Memorize the definitions and common examples for each type of utility to correctly match them in objective questions.

 

Question 2.Statments Indicating consumer equilibrium:
a) MU is greater than price
b) MU is equal to price
c) MU is less than price
d) Price is less than one
Options:
I) a and b
II) a, b,c and d
III) a,b and c
IV) only b
Answer:IV) only b
In simple words: Consumer equilibrium is achieved when the marginal utility (MU) derived from consuming a good equals its price, meaning the consumer is maximizing satisfaction given their budget.

🎯 Exam Tip: The condition MU = Price is the fundamental principle for consumer equilibrium in the cardinal utility approach, signifying optimal consumption.

 

3. Identify and explain the concept from the given illustrations.

 

Question 1.Salma purchased sweater for her father in winter season.
Answer:Concept: Time utility. Explanation: When utility of a commodity increases during a particular season it is called time utility. Utility of sweater increases in winter season.
In simple words: Time utility arises when a good's usefulness increases due to its availability at a specific time, like a sweater being more useful in winter.

🎯 Exam Tip: Focus on the element of 'time' or 'season' in such examples to correctly identify time utility.

 

Question 2.Nilesh purchased ornaments for his sister.
Answer:Concept: Possession utility. Explanation: When the ownership of a product changes from seller to buyer, it is called possession utility. In the given example, ornaments are purchased by Nilesh for his sister. Ownership of a product changed, so it is an example of possession utility.
In simple words: Possession utility occurs when the transfer of ownership of a good from one person to another increases its usefulness to the new owner.

🎯 Exam Tip: Look for changes in ownership or possession of goods in an example to identify possession utility.

 

Question 3.Kavita consumed five units of oranges one after the other.
Answer:Concept: Successive consumption. Explanation: To experience the law of DMU, there should be consumption of units of commodity, without time gap. It is called successive consumption. The given example explains that five oranges are consumed by Kavita one after another without interval of time.
In simple words: Successive consumption refers to consuming units of a good continuously without a significant time gap, which is a key assumption for the law of diminishing marginal utility to hold true.

🎯 Exam Tip: Understanding successive consumption helps explain why the Law of DMU is observable; without it, tastes might change or satisfaction could reset.

 

Question 4.Bhushan refused to eat fifth chapati after eating four chapatis.
Answer:Concept: Disutility. Explanation: When the want is fully satisfied, a consumer realises full satisfaction i.e. point of satiety. But, beyond this point, he experiences negative utility. So, he refuses to consume any more unit of commodity. If consumption continues, it results into disutility.
In simple words: Disutility is the negative satisfaction or dissatisfaction experienced by a consumer when consuming units of a good beyond the point of satiety, making further consumption undesirable.

🎯 Exam Tip: Disutility is an important concept showing that beyond a certain point, consuming more can lead to negative satisfaction, not just zero satisfaction.

 

Question 5.Lalita satisfied her want of writing on essay by using pen and notebook.
Answer:Concept: Utility. Explanation : Utility is want satisfying capacity of a commodity. The given example explains that, Lalita's want of writing an essay can be satisfied with the help of pen and note-book.
In simple words: Utility is the capacity of a good or service to satisfy human wants, meaning it provides satisfaction to the consumer.

🎯 Exam Tip: Utility is a core concept in economics; always remember it refers to the 'want-satisfying power' of a good or service.

 

4. Observe the given table and answer the questions:

Units of Com. 'X'	TU Units	MU Units
1	6	6
2	11	5
3	15	4
4	15	0
5	14	-1

1) Draw total utility curve and marginal utility curve.
2) a) When total utility is maximum marginal utility is ..............
b) When total utility falls, marginal utility becomes ..............
Answers:1.
ℹ️ चित्र व्याख्या (Diagram Explanation): यह आरेख एक ग्राफ पर कुल उपयोगिता (TU) और सीमांत उपयोगिता (MU) वक्रों को दर्शाता है। क्षैतिज X-अक्ष वस्तु की उपभोग की गई इकाइयों को दर्शाता है, जबकि ऊर्ध्वाधर Y-अक्ष उपयोगिता (MU और TU दोनों) को मापता है। TU वक्र शुरू में बढ़ता है, फिर अधिकतम बिंदु पर पहुंचता है, और उसके बाद गिरना शुरू होता है, जबकि MU वक्र लगातार घटता है, शून्य को पार करता है, और अंततः नकारात्मक हो जाता है, जिससे यह दर्शाता है कि TU अपने अधिकतम पर है जब MU शून्य है, और जब TU गिरता है तो MU नकारात्मक होता है।
2. Zero
3. Negative
In simple words: Based on the table and the principles of utility, when total utility reaches its peak, marginal utility is zero; and when total utility starts to decline, marginal utility becomes negative.

🎯 Exam Tip: Pay close attention to the numerical relationships in the utility schedule; the point where TU is maximum and MU is zero is crucial for understanding satiety.

 

5. Answer In Detail:

 

Question 1.State and explain the law of diminishing marginal utility with exceptions. OR State and explain the law of DMU? Explain its assumptions.
Answer:Law of Diminishing Marginal Utility : (A) Introduction: The law of diminishing M.U. explains economic behaviour of a rational consumer. The law was first proposed by Prof. Gossen and further explained in detail by Prof. Alfred Marshall in his book “Principles of J economics" published in 1890. The law of DMU is universal in nature. It indicates common consumer's behaviour that Marginal Utility diminishes with reduction in the intensity of want. (B) Statement of the Law : According to Prof. Alfred Marshall, “Other things remaining constant, the additional benefit which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has". In simple words, law of DMU can be stated as follows :
"Other things being the same, MU goes on diminishing with every successive unit of a commodity consumed." Thus, the law of DMU explains that, the more of a thing you have, the less you want to have more of it. In short, as consumption of identical units of commodity increases, MU diminishes. (C) Assumptions of the law of DMU : Assumptions are those conditions which are necessary for the validity of the law. They are as follows :
- Cardinal Measurement: The law assumes that utility can be measured cardinally i.e. in numbers. So, it is possible to express and compare the utility derived from each unit of commodity consumed.
- Homogeneity: It is assumed that all the units of commodity consumed are homogeneous or same. They are identical in case of size, shape, taste, colour, flavor, etc.
- Rationality: A consumer is assumed to be rational. His behaviour is normal from economic's point of view. It means, he tries to get maximum satisfaction.
- Continuity: All units of commodity are consumed successively, one after another, without time interval.
- Reasonability: The law assumes that, all the units of commodity consumed are reasonable in size. The unit of measurement is neither too big nor too small e.g. a cup of tea, glass of water, etc.
- Divisibility: A commodity is assumed to be divisible. So it is possible to divide the units of commodity in a proper size.
- Constancy: It is assumed that related factors like income, taste and preference, habits, choice of a consumer remain constant. MU of money is also assumed to be constant.
- Single want: A given commodity is used to satisfy a single want of a person. So that it is possible to experience full satisfaction from a single want.
- Schedule and Diagram : The law can be explained with the help of following schedule and diagram :

Units of Commodity	Marginal Utility (M.U)
1	10
2	8
3	6
4	4
5	2
6	0
7	-2

The above given schedule shows that MU goes on diminishing with an increases in units of commodity consumed. Graphical Presentation :
ℹ️ चित्र व्याख्या (Diagram Explanation): यह ग्राफ सीमांत उपयोगिता (MU) वक्र को दर्शाता है। क्षैतिज X-अक्ष वस्तु की उपभोग की गई इकाइयों को दर्शाता है, जबकि ऊर्ध्वाधर Y-अक्ष सीमांत उपयोगिता को मापता है। MU वक्र बाईं से दाईं ओर नीचे की ओर झुका हुआ है, जो दर्शाता है कि जैसे-जैसे वस्तु का उपभोग बढ़ता है, सीमांत उपयोगिता घटती जाती है। 'संतृप्ति बिंदु' वह बिंदु है जहां MU शून्य होता है, और उसके बाद MU नकारात्मक हो जाता है, जो 'अनुपयोगिता' या 'डिसयूटिलिटी' को दर्शाता है।
In the above given diagram, X-axis indicates units of commodity and Y-axis measures marginal utility. Various points are plotted on the graph which indicates MU derived from each unit of commodity consumed. When all these point are joined, we get MU curve. It slopes downward from left to right. It shows that MU diminishes as consumption of a commodity increases. The shaded portion of the diagram shows negative utility. It is because, beyond a certain level, further consumption of a commodity results into disutility. (E) Exceptions to the law of Diminishing M.U. Exceptions are those cases for which the law is not applicable. They are as follows :
1. Hobbies
2. Miser
3. Addictions
4. Power
5. Money
6. Reading They are explained as under :
(1) Hobbies: The law of DMU is not applicable in case of collection of stamps, coins, rare paintings, etc. It is because, when its stock increases, M.U. may increases because it gives more and more satisfaction. However, it violates the assumptions like homogeneity and continuity.
(2) Miser : For a miser, every additional rupee gives him more and more pleasure. So, when the stock of money increases, MU of money tends to rise. However, the behavior of a miser is irrational. It violates the assumption of rationality.
(3) Addictions : It is said that, the level of intoxication increases for drunkard with every additional consumption of liquor. It may increase MU for him. This condition is similar to most of the addictions. Here again, the assumptions like rationality and continuity are violated.
(4) Power: It is an exception to the law of DMU because, when a person acquires power, his craze for power increases MU from power. As a person gets power, he desires to have more and more of it. But, it violates the rationality, assumption.
(5) Money: Money is used as a medium of exchange. It helps to buy goods to satisfy human want. So MU of money increases with an increase in its stock. MU of money never becomes zero. The law holds true to money too. MU of money declines slowly as its stock increases. So MU of money is more for poor than rich people.
(6) Reading: When a person reads more and more, he gets deeper and deeper knowledge so MU of reading tends to increase. Similarly the law does not hold true in case of music, dance, etc. However, assumptions like continuity, homogeneity, etc. are violated. The law of DMU is universal in nature. These cases are not real exceptions as they violate some assumptions. So, it is said that, there are no real exceptions to the law of DMU.
In simple words: The Law of Diminishing Marginal Utility states that as a consumer consumes more units of a commodity, the additional satisfaction (marginal utility) derived from each successive unit tends to decrease. This law holds true under several assumptions like cardinal measurement, homogeneity, rationality, and continuity, but apparent "exceptions" like hobbies or money often violate these very assumptions, meaning they are not true exceptions.

🎯 Exam Tip: When explaining the Law of DMU, clearly state the definition, provide a schedule and diagram, and critically analyze the assumptions and apparent exceptions by showing how they violate the underlying conditions of the law.

 

Intect Questions

Try This (Textbook Page 8)

Make a list of 10 commodities which satisfy your wants.
Answer:Book, pen, mobile, foot-wear, watch, umbrella, bag, dress, bed sheet, soap.
In simple words: Commodities like books, pens, mobile phones, footwear, watches, umbrellas, bags, dresses, bed sheets, and soaps are common items that satisfy various human wants and needs.

🎯 Exam Tip: For such open-ended questions, provide a diverse list of items covering different categories of wants (e.g., knowledge, communication, comfort, protection).

 

Try This (Textbook Page 8)

Make a list of 10 commodities which ( satisfy the wants of particular individuals performing specific activities. For example, A chalk has utility for a teacher.
Answer:- A stethoscope has utility for a doctor. - A net has utility for a fisherman. - A thermometer has utility for a nurse. - A cow has utility for a farmer. - Cooking gas has utility for a housewife. - A scissor has utility for a barber. - Wood has utility for a carpenter. - Needle has utility for a tailor. - Mud has utility for a potter. - A pen has utility for a writer.
In simple words: Many commodities have specific utility for individuals based on their profession or activity, such as a stethoscope for a doctor or wood for a carpenter, making their wants more specialized.

🎯 Exam Tip: When providing examples for specialized utility, ensure each item is paired logically with a specific profession or activity to demonstrate clear relevance.

 

Try This (Textbook Page 10) :

Following are the various types of utility and their respective examples. Arrange the information in the form of pairs:
Answer:Types of utility : Time utility, possession utility, service utility and place utility. Examples: - A dentist giving dental treatment to a patient. - A mountaineer using oxygen cylinder at a high altitude. - A farmer selling rice stored in the warehouse at the end of the season. - A retail trader purchasing 100 chairs from the wholesale trader.

Example	Type of Utility
(a) A dentist giving dental treatment to a patient.	Service utility
(b) A mountaineer using oxygen cylinder at a high altitude.	Place utility
(c) A farmer selling rice stored in the warehouse at the end of the season	Time utility
(d) A retail trader purchasing 100 chairs from the wholesale trader.	Possession utility

In simple words: Utility can be classified into different types based on how and when it is created; for instance, a dentist provides service utility, an oxygen cylinder at high altitude offers place utility, rice sold at season-end has time utility, and a trader buying goods illustrates possession utility.

🎯 Exam Tip: Create a table for matching questions involving utility types and examples to ensure clarity and accuracy in your answers.

 

Try This (Textbook Page 11)

Complete the following chart :
Answer:Total Utility:
(a) Total Utility is the sum total of the individual utilities derived from the consumption of all units of good.
(b) Total Utility increases at a diminishing rate.
(c) At a point of satiety, Total Utility is maximum.
(d) Total Utility declines if consumption continues.
(e) Total Utility determines value-in-use of a commodity.
(f) Total Utility is always positive.
ℹ️ चित्र व्याख्या (Diagram Explanation): यह आरेख कुल उपयोगिता (TU) वक्र को दर्शाता है। क्षैतिज X-अक्ष वस्तु की उपभोग की गई इकाइयों को दर्शाता है, जबकि ऊर्ध्वाधर Y-अक्ष कुल उपयोगिता को मापता है। TU वक्र शुरू में बढ़ता है, फिर एक अधिकतम बिंदु (संतुष्टि बिंदु) तक पहुंचता है, और उसके बाद गिरना शुरू होता है, जो दर्शाता है कि उपभोग बढ़ने के साथ कुल संतुष्टि कैसे बदलती है।
Marginal Utility :
(a) Marginal Utility is the addition made to the Total Utility from every additional unit consumed.
(b) Marginal Utility goes an diminishing.
(c) At a point of satiety, Marginal Utility = 0
(d) Marginal Utility becomes negative if consumption continues.
(e) Marginal Utility determines value-in-exchange of a commodity.
(f) Marginal Utility can be positive, zero or negative.
ℹ️ चित्र व्याख्या (Diagram Explanation): यह आरेख सीमांत उपयोगिता (MU) वक्र को दर्शाता है। क्षैतिज X-अक्ष वस्तु की उपभोग की गई इकाइयों को दर्शाता है, जबकि ऊर्ध्वाधर Y-अक्ष सीमांत उपयोगिता को मापता है। MU वक्र बाईं से दाईं ओर नीचे की ओर झुका हुआ है, जो दर्शाता है कि उपभोग बढ़ने के साथ प्रत्येक अतिरिक्त इकाई से प्राप्त संतुष्टि घटती जाती है। यह वक्र शून्य बिंदु से भी नीचे जा सकता है, जो नकारात्मक उपयोगिता को दर्शाता है।
In simple words: Total Utility represents the overall satisfaction from consuming all units of a good, increasing at a diminishing rate to a maximum point and then falling; while Marginal Utility is the additional satisfaction from one more unit, which typically diminishes and can become zero or negative.

🎯 Exam Tip: Clearly define and differentiate Total Utility (TU) and Marginal Utility (MU), detailing their characteristics and relationship at different consumption stages, including graphical representation.

 

Try This (Textbook Page 14) :

Write an informative note on paradox of values along with examples.
Answer:Paradox of values - The concept of value paradox is introduced by Adam Smith. The term value has two meanings
(i) Value in use
(ii) Value in exchange Some goods have greater value in use but smaller value in exchange e.g. water. However, some goods have smaller value in use but greater value in exchange e.g. diamond. So, paradox of value is also called as water-diamond dilemma. Greater value in use denotes high total utility whereas, greater value in exchange shows high marginal utility. Thus, the concept paradox of value is very useful to understand the concepts of utility i.e., Total Utility & Marginal Utility.
In simple words: The paradox of value, or water-diamond dilemma, highlights that some necessities like water have high "value in use" (total utility) but low "value in exchange" (price), while luxuries like diamonds have low "value in use" but high "value in exchange," illustrating the distinction between total and marginal utility.

🎯 Exam Tip: When explaining the paradox of value, emphasize the difference between value in use (related to total utility) and value in exchange (related to marginal utility) using classic examples like water and diamonds.

 

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