CBSE Class 12 Economics Consumers Equilibrium and Demand MCQs

Question :  Law of Diminishing Marginal Utility states that when more and more units of a commodity ate consumed, marginal utility:

a) begins to increase 

b) remains constant

c) begins to decrease 

d) becomes zero

Answer :  begins to decrease 

Question :  When total utility is maximum, marginal utility becomes :

a) Unity

b) Negative

c) Zero

d) Positive

Answer :  Zero

Question :  If the consumer consume only one commodity ‘X’ he will be in equilibrium when :

[Here, MUx= Marginal utility of the good X (in terms of money); Px= Price of good –X]

a) MUx <Px     

b) MUx= Px

c) MUx >Px     

d) None of these

Answer :  MUx= Px

Question :  What will be the condition of total utility when marginal utility stays positive ?

a) Maximum 

b) Diminishing

c) Increasing

d) Minimum

Answer :  Increasing

Question :  When TU is increasing at a diminishing rate, MU must be :

a) Increasing

b) Decreasing

c) Constant      

d) Negative

Answer :  Decreasing

Question :  Marginal utility of a particular commodity at the point of saturation is :

a) Zero

b) Unity

c) Greater than unity

d) less than unity

Answer :  Zero

Question :  Which of the following equations is incorrect ?

a) MU= TUn+2 – TUn+1

b) MU= TU/Q

c) MU= TUn-TUn-1 

d) TU= ∑MU

Answer :  MU= TU/Q

Question :  In which analysis  can utility be measured in definite numbers such as 1,2,3,4 etc ?

a) Cardinal utility analysis  

b) Ordinal utility analysis

c) Both of these

d) None of these

Answer :  Cardinal utility analysis  

Question :  Diagrammatic presentation of consumer’s indifference set is called ?

a) Indifference curve 

b) Utility curve

c) Budget line

d) Transformation curve

Answer :  Indifference curve 

Question :  Budget line indicates :

a) Price ratio

b) Income ratio

c) Cost ratio

d) None of these

Answer :  Price ratio

Question :  Attainable combinations of X and Y are drawn on the assumption that Px and Py are

a) Constant 

b) Variable

c) Change in the same ratio

d) Equal to each other

Answer :  Constant 

Question :  According to IC analysis , a consumer attains equilibrium when :

a) MRSxy =  Px/Py      

b) MRSxy> Px/Py

c) MRSxy< Px/Py

d) None of these

Answer :  MRSxy =  Px/Py      

Question :  Given the fact that MRS between goods X and Y is diminishing , IC is:

a) Convex to the origin 

b) Concave to the origin

c) Straight line 

d) None of these

Answer :  Convex to the origin 

Question :  An indifference curve is related to

a) Choice and preferences of the consumer

b) Consumer’s income

c) Prices of goods X and Y

d) Total utility from goods X and Y

Answer :  Choice and preferences of the consumer

Question :  The slope of indifference curves is measured by

a) Marginal rate of transformation

b) Marginal rate of substitution

c) Marginal rate of technical substitution 

d) None of these

Answer :  Marginal rate of substitution

Question :  How are goods X and Y when, as a result of rise in the price of good-X , demand for good-Y increases ?

a) Substitute goods

b) Complementary goods

c) Normal goods   

d) Inferior goods

Answer :  Substitute goods

Question :  In case of normal goods, demand curve shows :

a) A negative slope

b) A positive slope

c) Zero slope

d) None of these

Answer :  A negative slope

Question :  Law of demand must fall in case of :

a) Normal goods 

b) Giffen goods

c) Inferior goods  

d) None of these

Answer :  Giffen goods

Question :  Inferior goods are those whose income effect is :

a) Negative       

b) Positive

c) Zero   

d) None of these

Answer :  Negative       

Question :  Shift in demand curve means :

a) Fall in demand due to rise in own price of the commodity 

b) Rise in demand due to fall in own price of the commodity

c) Change in demand due to factors other than the change in own price of the commodity 

d) None of these

Answer :  Change in demand due to factors other than the change in own price of the commodity 

Question :  Which of the following pairs represents substitute goods ?

a) Car and petrol 

b) Coffee and tea

c) Bread and butter

d) All of the above

Answer :  Coffee and tea

Question :  In case of Giffen’s Paradox the slope of demand curve is

a) Negative              

b) Positive

c) Parallel to X-axis 

d) Parallel to Y-axis

Answer :  Positive

Question :  As a result of rise in consumer’s income , demand curve for coarse grain (inferior good) :

a) Shifts to the left 

b) Shifts to the right

c) Becomes a horizontal straight line

d) Becomes a vertical straight line

Answer :  Shifts to the left 

Question :  If two goods are complementary then rise in the price of one results in

a) Rise in demand for the other 

b) Fall in demand for the other

c) Rise in demand for both

d) None of these

Answer :  Fall in demand for the other

Question :  The graphic presentation of a table showing price and demand relationship for a commodity in the market is called :

a) Individual demand curve 

b) Producer’s demand curve

c) Market demand curve 

d) Consumer’s demand curve

Answer :  Market demand curve 

Question :  When there is no change in quantity demand in response to any change in price, it is a situation of :

a) Zero price elasticity  

b) Infinite price elasticity

c) Unitary price elasticity 

d) None of these

Answer :  Zero price elasticity  

Question :  When total expenditure increases in response to decrease in the price of the commodity the elasticity of demand is :

a) Greater than unity 

b) Less than unity

c) Unity           

d) Infinity

Answer :  Greater than unity 

Question :  Ed> 1 represents

a) Elastic demand  

b) Inelastic demand

c) Unitary elastic demand

d) None of these

Answer :  Elastic demand  

Question :  On all points of rectangular hyperbola demand curve, elasticity of demand is

a) Equal to unity        

b) Zero

c) Greater than unity

d) Less than unity

Answer :  Equal to unity        

Question :  When demand curve is parallel to X-axis, elasticity of demand is

a) Unity

b) Zero

c) Greater than unity

d) Infinity

Answer :  Unity 

Question :  At the mid-point of as straight line downward sloping demand curve, elasticity of demand (Ed) is

a) 2 

b) 1/2

c) 1

d) 4

Answer :  1

Question :  When percentage change in demand is less than percentage change in price, demand is:

a) Perfectly inelastic 

b) Perfectly elastic

c) More than unitary elastic          

d) less than unitary elastic

Answer :  less than unitary elastic

Question :  When percentage change in demand is more than percentage change in price, demand is:

a) Inelastic       

b) Elastic

c) Perfectly inelastic

d) Unitary

Answer :  Elastic

Question :  What will be the elasticity of demand (Ed) when demand curve is parallel to Y-axis?

a) Unity

b) Zero

c) Less than unity      

d) More than unity

Answer :  Zero

Question :  If due to fall in price, total expenditure (Ed) when demand curve is parallel to Y-axis?

a) A case of inferior good

b) Price elasticity of demand is less than unity

c) Price elasticity of demand is greater than unity

d) Price elasticity of demand is infinity

Answer :  Price elasticity of demand is less than unity

Question :  A consumer demands 5 units of a commodity at the  price of ₨4 per unit. He demands 10 units when the price falls to Rs3 per unit. Price elasticity of demand is equal to :

a) 3

b) 4

c) 2

d) 1.5

Answer :  4

Question :  Using total expenditure method , what is Ed when price and demand are as under :

a) Ed=1

b) Ed<1

c) Ed>1

d) Ed=0

Answer :  Ed>1

Question :  Per unit production of the variable factor is called

a) Total product   

b) Average product

c) Marginal product

d) None of these

Answer :  Average product

Question :  Which of the following equations is correct ?

(AP= Average product)

 (Q= Output)

(L=Variable factor) 

(MP= Marginal Product)

a) AP=Q/L     

b) MP=Q/∆L

c) MP= ∆Q/L

d) None of these         

Answer :  AP=Q/L     

Question :  Which of the following equations is correct ?

a) MP= TPn-TPn-2    

b) MP=AP/L

c) MP=TP/L

d) MP=∆TP/∆L

Answer :  MP=∆TP/∆L 

Question :  Variable proportions type production function exists:

a) When with change in the level of output there is change in factor ratio

b) When it is possible to increase output by increasing the application of the variable factor 

c) When scale of production changes with change in the level of output

d) Both (a) and (b)

Answer :  Both (a) and (b)

Question :  What will be the state of total output when marginal product turns negative?

a) Total output will begin to fall

b) Total output will begin to rise

c) Total output will remain constant 

d) None of these

Answer :  Total output will begin to fall

Question :  When average product (output) increase, marginal product is :

a) Equal to average product

b) Greater than average product

c) Less than average product   

d) Zero

Answer :  Greater than average product

Question :  Which one of the following leads to the law of variable proportions ?

a) Some factors are constant

b) Some factors are more efficient than other

c) Specialization of factors            

d) None of these

Answer :  Some factors are constant

Question :  In case of diminishing returns :

a) Total product increases at diminishing rate

b) Total product increases at increasing rate

c) Marginal product diminishes 

d) Both(a) and (c)

Answer :  Both(a) and (c)

Question :  When more and more units of a variable factor are combined with the fixed factor, the resulting law is called :

a) Law of variable proportions

b) Law of increasing Returns to Scale

c) Law of Decreasing Return to  Scale

d) Law of Constant Return Scale

Answer :  Law of variable proportions

Question :  What does break- even point indicate?

a) TR>TC

b) TR<TC

c) TR=TC

d) TC=0

Answer :  TR=TC

Question :  Difference between TR and TC is maximum when

a) AR=MR

b) MR=MC

c) MR=AC

d) MC=AC

Answer :  MR=MC

Question :  Under perfect competition, for the producer to be in equilibrium :

a) AR=MR=AC and AC must be rising 

b) AR=MR=MC and MC must be falling

c) AR=MR=MC and MC must be rising

d) AR=MR=TC and TC must be rising

Answer :  AR=MR=MC and MC must be rising

Question :  In the context of producer’s equilibrium which one is wrong

a) Minimum difference between TR and TC

b) MR=MC

c) Producer gets maximum profit

d) In equilibrium situation producer has no tendency to change his production.

Answer :  Minimum difference between TR and TC

Question : Which of the following utility approach is based on the theory of Alfred Marshell?
1. Ordinal utility approach
2. Cardinal utility approach
3. Independent utility approach
4. None of the above
Answer : Cardinal utility approach.

Question : An individual bought 50 units of a product at Rs. 4 per unit. When the price falls by 25% it demand rises to 100 unit. Find the price elasticity of demand.
Answer : Elasticity of demand is 4.

Question : Which utility is added to the total utility by consuming one additional unit of the commodity?
1. Ordinal Utility
2. Total Utility
3. Marginal Utility
4. Average Utility
Answer : Marginal Utility

Question : State the law of equi-marginal utility.
Answer : The law of equi-marginal utility refers to a balanced position where a consumer distributes his income between different goods in such a way that the value derived from the last rupees is the same as the first one.

Question : What is the reason behind a convex indifference curve?
Answer : The reason behind a convex indifference curve is the diminishing marginal rate of substitution.

Question : What is a consumer surplus?
Answer : Consumer surplus is defined as the difference between what the customers are want to pay for a product and what he is able to pay.

Question : What is the point of society?
Answer : The point of society is when the marginal utility becomes zero.

Question : Price elasticity of demand for flour is equal to unity and a household demands 40kg of flour when the price is Rs. 1 per kg. At what price will the household demand 36 kg of flour.
Answer : The cost of the flour rises to Rs. 1.10 per kg.

Question : Is the demand for the following elastic, moderate elastic, inelastic? Give reason.
1. Demand for petrol
2. Demand for textbooks
3. Demand for cars
4. Demand for milk
Answer : (1) The demand for petrol is moderately elastic as when the cost of petrol rises, the customers will decrease the use of it.
(2) The demand for textbooks is inelastic because even if the price rises the demand will never change.
(3) The demand for cars is elastic as it is a luxury good so when the price of a car goes up, the demand for it comes down
(4) The demand for milk is elastic because when the price of the milk increases the consumer starts taking less quantity of milk.

Question : Describe the assumption which is made to determine the consumer’s equilibrium position.
Answer : The assumption which is made to determine the consumer’s equilibrium position are mentioned below.
• Rationality- The consumer has a rational behavior, they want to consume maximum from his given income and price
• Utility in Ordinal- It is assumed that the consumer ranks his performances according to that satisfaction from each combination of products.
• The Consistency of Choice- It is also assumed that the customer’s choices are consistent.
• Perfect Competition- The perfect competition in the market is from where the customers are purchasing the goods from.
• Total Utility- This depends on the total quantities of product consumed by the consumer.