# Class 11 Economics Chapter 2 Theory of Consumer Behaviour

Class 11 Economics Chapter 2 Theory of Consumer Behaviour, (Assam Higher Secondary Education Council) AHSEC Class 11 Economics Question Answer in English Medium each chapter is provided in the list of AHSEC so that you can easily browse through different chapters and select needs one. Assam Board Chapter 2 Theory of Consumer Behaviour Class 11 Economics Question Answer can be of great value to excel in the examination.

## AHSEC Class 11 Economics Chapter 2 Theory of Consumer Behaviour

Class 11 Economics Chapter 2 Theory of Consumer Behaviour Notes cover all the exercise questions in SCERT Textbooks. The SCERT Class 11 Economics Chapter 2 Theory of Consumer Behaviour Solutions provided here ensure a smooth and easy understanding of all the concepts. Understand the concepts behind every chapter and score well in the board exams.

Theory of Consumer Behaviour

Chapter – 2

PART – A

1. Define utility.

Ans: Utility is the wants satisfying capacity of good.

2. What does the utility of a consumer represent ?

Ans: Utility of a consumer represents the satisfaction actual or expected, derived from the consumption of a commodity by a consumer.

3. What is budget set for a consumer ?

Ans: The set of the bundles of goods available to the consumer with his given income is called the budget set of a consumer.

4. What is budget line ?

Ans: The budget line represents all bundles of goods which cost the consumer entire income.

5. What is the slope of the budget line ?

Ans: The slope of the budget line is -Pₓ /Py.This implies that budget line has a negative or downward slope. The downward sloping budget line indicates that the consumer can buy extra units of commodity x only by sacrificing some units of commodity y.

6. What does the slope of the consumer’s budget line determine ?

Ans: Number of one commodity sacrificed for an extra unit of another commodity.

7. What do the points below the consumer’s budget line indicate ?

Ans: The bundles of goods that cost less than his money income.

8. What does the rate of substitution between two goods measure ?

Ans: The marginal rate of substitution between two commodity x and y is written as MRSyx= ∆x/∆y. Marginal rate of substitution of x for y is defined as the amount of y the consumer is willing to give up to get one more unit of x and maintain the same level of satisfaction.

9. Why does an indifference curve slop downward ?

Ans: Because of the law of diminishing marginal rate of substitution .

10. Fill in the blanks:

In economics, it is generally assumed that the consumer is a ___ individual.

Ans: rational.

11. What does the rationality of a consumer indicate?

Ans: Maximum satisfaction attained by the consumer in consumption of a commodity.

12. Choose the correct portion :

The Optimum points of preference for a consumer would be located above the budget line/ below the budget line/on the budget lines.

Ans: Above the budget line.

13. Suppose X and Y are two variables and the value of Y depends on the value of X. Write whether the Y variable be called independent or dependent.

Ans: Dependent Variable.

14. Consider any two variable X and Y. the value of Y depends on the value of X. Write down the functional relation between the two variables.

Ans: Y = f(x).

15. In economics, dependent variable is measured along the vertical axis for graphical representation of a function. ― Write true or false.

Ans: True.

16. Fill in the blanks :

(a) The scope of the demand curve measures the ___ at which demand changes with respect to its price.

Ans: quantity.

(b) The set of bundles available to the consumer for preference is called the ___ set. (Alternative, budget)

Ans: budget.

17. What is a demand function ?

Ans: It is the technical relationship between the amount of quality demanded and the factors influencing demand, i.e. price, time, income etc. Symbolically

Qd=f (P, t, y……..)

18. What is normal goods ?

Ans: The quantity of a good that the consumer demands can increase or decrease with the rise in income depending on the nature of the good. For most goods, the quantity that a consumer chooses, increases as the consumer’s income increases and decreases as the consumer’s income decrease, Such goods are known as normal goods.

19. What is inferior goods ?

Ans: The consumer’s demand for a good can can increase or decrease with the rise in income depending on the nature of the good. There are some goods the demand for which move in the opposite direction of the income of the consumer. Such goods are called inferior goods.

20. Define complementary goods.

Ans: There is a relation between the quantity of a good that a consumer chooses and the price of a related good. The quantity of a good that the consumer chooses can increase or decreases with the rise in the price of a related good. But there are some goods which are consumed together. These type of goods are complementary to each other Examples of goods which are complementary to each other are tea and sugar, shoes and socks, pen and ink etc.

21. Give one example of complementary good.

Ans: There is a relation between the quantity of a good that a consumer chooses and the price of a related good. The quantity of a good that the consumer chooses can increase or decreases with the rise in the price of a related good. But there are some goods which are consumed together. These type of goods are complementary to each other Examples of goods which are complementary to each other are tea and sugar, shoes and socks, pen and ink etc.

22. Choose the correct one :

The demand for good usually moves in the opposite direction of the price of its substitutes/complementary good.

Ans: Complementary good.

23. Write true or false :

The elasticity of demand is pure number.

Ans: True.

24. A consumer’s total utility has been found to be 60 after consumption of 5 units of a commodity. His total utility was 56 after the consumption of 4 units. Calculate his marginal utility.

Ans:

Given,

Total Utility at 5 unit        = 60

and total utility a 4 Unit   = 56

∴    Marginal utility

25. It the price of a commodity increased by 10% and the total expenditure of the consumer on that commodity remain constant.

― What is the elasticity of demand?

Ans: It is equal to one.

26. State the meaning of consumer’s budget constraint.

Ans: When prices of the commodities and quantity demanded of the commodities are limited by the money income of the consumer, it is known as consumer’s budget constraint.

27. Give the meaning of the rate of substitution between two goods.

Ans: The marginal rate of substitution between two commodity x and y is written as MRSyx= ∆x/∆y. Marginal rate of substitution of x for y is defined as the amount of y the consumer is willing to give up to get one more unit of x and maintain the same level of satisfaction.

28. What is convex preference ?

Ans: If between any two bundles the consumer prefers the bundle which has more of at least one good and no less the another goods, as compared to the other bundles.

29. What is an indifference curve ?

Ans: An indifference curve refers to the graphical representation of all possible combination of two goods which gives the consumer equal level of satisfaction.

30. What is a giffen goods ?

Ans: When the demand for goods decreases with the fall in its price and increase with the rise in its price is known as giffen good.

31. The total utility of a consumer is found to be 80 after consumption of 10 units of a commodity. The marginal utility he derives from the consumption of 11 th unit is 9. Find out the total utility after consumption of 11 units.

Ans: Total utility is 89.

32. The total utility of a consumer has been found to be 70 after consumption of 10 units of a commodity. His total utility decreases to 60 if he reduces his consumption by one unit. Calculate the marginal utility of the consumer.

Ans: Marginal utility is 10.

33. If elasticity of demand is zero and price of a commodity is decreased by 10% what will be the change in quantity demanded ?

Ans: Quantity demanded will not change, it is equal to zero.

34. If the percentage in quantity demanded is equal to the percentage change in price, what is the price elasticity of demanded ?

Ans: Unitary Elastic Demand or Ed = 1.

35. Why is production possibility frontier called the opportunity cost curve ?

Ans: Because Production Possibility frontier is based on the concept of opportunity cost.

36. Define final goods.

Ans: Final goods are those goods which are ready to be consumed by the consumer.

37. What is consumption bundle.

Ans: Consumption bundle are combination of two or more goods that he can by which costs him less or equal to his income.

38. Draw a consumer’s budget line

Ans:

39. Explain how price elasticity of demand for a good depends on its nature.

Ans: Price elasticity of demand depends on the nature of the goods whether the goods are normal, luxuries, necessities etc. For example if the goods are luxuries, the price elasticity of demand is greater than 1.

40. What is shut down point of a firm ?

Ans: A firm can continue its production for the long run even if it incurs loss within a certain limit. During the short run, if it exceeds the time of loss, it has to shut down. The point at which the firm fails to cover it’s average variable cost is known as shut down point.

41. The monthly income of a consumer is Rs. 400 and he spends this income entirely on two commodities, X and Y. The price of the commodity X is Rs 20 and that of Y is Rs.25. On the basis of these information.

(i) draw the budget line of the consumer.

Ans: (i) Here the two goods are X and Y

Price of good X is Rs. 20

Price of good Y is Rs. 25

Income of the consumer = Rs. 400

The equation for budget line is 400=20x+25y

SHORT ANSWER QUESTION TYPE – II: (MARKS: 3)

1. State the assumptions under which the demand curve of consumer is drawn.

Ans: Assumption of the law of demands:  Law of demand holds good when “other things remain the same”. It means, factors influencing demand other than price are assumed to be constant. These constitute the assumptions of the law. It applies to normal goods and not to Giffen goods.

The main assumption of the law are as follows:

(a) Tastes and preferences of the consumers remain constant,

(b) There is no change in the income of the consumer,

(c) Prices of the related goods do not change,

(d) Consumer do not expect any change in the price of the commodity in the near future.

Law of demand may be explained with the help of demand schedule:

Demand schedule:

The schedules shows extension of demand in response to decrease in price of the commodity. Thus, demand stretches from 100 to 150 units when price reduces from Rs. 10 to Rs.9 per unit. It may be further illustrated with the help of demand curve. In the figure below DD is the demand curve which shows the demand for commodity. On the ox axis quantity is measured and oy axis, price of the commodity is measured. When the price of commodity x is OP, the demand is OL but when the price of x fall from OP to OP1, the demand extend from OL to OL1. The downward slope of demand curve is an expression of the law of demand.

2. Define price elasticity of demand.

Ans: Price elasticity of demand is percentage change in demand divided by percentage change in price. The price elasticity of demand tells us that percentage fall in demand due to percentage rise in price and percentage rise in demand due to percentage fall in price. In other words, price elasticity of demand is the degree of responsiveness of demand for the commodity to a charge in its price. i.e.- Percentage

Ed = (―) Percentage change in demand/ Percentage change in price = (―) P/Q× ∆Q/∆P.

3. What is budget line? Why does it slope downward ?

Ans: Budget line represents all bundles of two goods which a consumer can by with his entire income and given prices of the goods.

The slope of the budget line is – Px/Py. This implies that budget line has a negative or downward slope. The downward sloping budget line indicates that the consumer can buy extra units of commodity x only by sacrificing some units of commodity y.

4. What is monotonic preference of a consumer ?

Ans: A monotonic preference in which between any two bundle of goods, the consumer prefers the bundles which has more of at least one of the goods and no less of the other goods compared to the other bundles.

5. What is diminishing rate of substitution ?

Ans: The law of diminishing marginal rate of substitution states that the consumer will be willing to forgo smaller and smaller units of one good ( say, y) to have successive additional units of another good (say, x). We can explain the law with the help of the indifference schedule.

Table : Marginal Rate of substitution.

In table above, all the combinations give the same satisfaction to the consumer. If he chooses combination A, he gets one good A and fifty good ‘B’. In combination ‘B’ , he get one more ‘A’ and is prepared to give twelve ‘B’ for it. The MRS here is 1:12. In combination C, he is willing to sacrifice only ten good B for another ‘A’. The MRS falles to become 1:10. In the successive combination D, E and F, the MRS continues to fall. This illustrates the diminishing rate of substitution.

6. What does an indifference map indicate ?

Ans:

The consumer’s preferences over all the bundles can be represented by a family of indifference curves. The set of indifference curve representing the different levels of satisfaction obtainable from different schedules of indifference is called an indifference map. This is shown in the figure.

All points on an indifference curve represents bundles, which considered indifferent by the consumer.

Monotonicity of preference imply that between any two indifference curves, the bundles on the one which lies above are preferred to the bundles on the one which lies below.

7. What is a demand curve? What does it indicate ?

Ans: Demand curve is a graphical presentation of demand schedule, showing different possible quantities of a commodity to be purchased against different possible prices.

Demand curve slopes downward and its slope shows that there is inverse relationship between price of a commodity and it’s quantity demanded.

8. Draw a vertical demand curve and state the nature of price elasticity on it.

Ans: The nature of price elasticity is perfectly inelastic i.e., ed=0.

9. Describe how price elasticity of demand for a good depends on its nature.

Ans: In case of necessary goods the nature is elastic.

Again, in case of luxury goods the nature is highly elastic.

In case of giffen goods the nature is perfectly inelastic.

10. The total money income of a consumer is M and he spends his entire money income on the consumption of two commodities, viz. X and Y the prices of X and Y are PC and Py and Py respectively. State the budget equation.

Ans: The budget equation is pxqx+pyqy=M

11. Two combination of X and Y available to a consumer be indifferent between these two combination ?―Explain.

Ans: No, the consumer will be not indifferent in between these two combinations, because both the combinations will give the same level of satisfaction.

12. A student of H.S 2nd year is indifferent between two combinations (10, 6) and (8, 6) of two goods X and Y. Explain whether his preference is consistent or not.

Ans: The consumer preference is not consistent. Because, he would have preferred (10, 6) over (8, 6) as it contains more of one commodity and no less of the other commodity.

13. The following table contains different combination of price and quantity demand for a commodity. Draw a demand curve.

Ans:

14. When the price of a commodity is Rs. 10, the quantity demanded is 20 units. Suppose price decreases to Rs. 8 and quantity demand becomes 15 units. Calculate the elasticity of demand.

Ans:

15. Suppose with the increase in the price of a commodity by 4% the total expenditure on that commodity increased by 3% . Explain the nature of the commodity.

Ans: The nature of the commodity is inelastic, because when price of the commodity increase the total expenditure also increases.

16. Draw an indifference curve and state the reason behind its downward slope.

Ans:

The reasons behind for its downward slope is the operation of the law of diminishing marginal rate of substitution.

17. Distinguish between substitutes and complementary goods.

Ans: See Q. No. 6 (Short types I)

18. Bring Out the differences between substitutes and complementary goods.

Ans: See Q. No. 6 (Short types I)

19. ‘The demand for luxury good is more price-elastic’―Explain.

Ans: The demand for luxury good is more price-elastic, because in case of luxury goods the percentage change in demand is more than the percentage change in price. This means that the quantity demanded responds to a greater extent than the given change in price.

20. State the concept of utility function.

Ans: Utility is the sum total of the satisfaction that a consumer derives when a certain number of units of a particular commodity is consumed. In other words, utility is a function of various quantities of a commodity. It can be expressed as―

Uₓ=F(Nₓ)

where  Uₓ=utility from the consumption of x goods

F= Functional relationship

Nₓ= Number of units consumed.

21.  Suppose the student of class v prefers a combination (10, 2) to another combination (9, 1). Can his preference be called as consistent ?

Ans: No, the consumer preference is not consistent. Because, he would have preferred (10, 2) over (9, 1) as it contains more of one commodity and no less of the other commodity.

22.  Suppose the price of a commodity is Rs. 10 and the quantity demanded is 20 units. Calculate the price elasticity of demand , if the price increase to Rs. 15 and quantity demanded increase to 15 units.

Ans: Same as Q. No. 14( Short types-II)

23.  A person is indifferent between two combinations (10, 10) and (5, 5) of two goods. Explain whether his preference is consistent or not.

Ans: The consumer preference is not consistent. Because, he would have preferred (10, 10) over (5, 5) as it contains more of one commodity and no less of the other commodity.

24. Let the income of one individual is Rs. 200 and he spends his entire money income on two commodities, bread and banana. If the per unit price of bread is Rs. 20 and the price of banana is Rs. 10 per units, state the budget equation of the consumer and draw the budget line.

Ans:

the banana be = y

∴ The budget equation is ―20x+10y=200

The budget line is ―

25. Let the income of the consumer is M and he spends his entire money income on two commodities x and y. If the price of commodity x is Px and the price y is Py―

(i) Draw the consumer’s budget line.

(ii) How the budget line will shift if the income of the consumer increases from M to M1.

Ans: Same as Q. No. 10 (Short Types-II)

26. The following table contains information regarding the price (Px) of and quantity demanded for a commodity. Draw the demand curve :

Ans: Same as Q. No. 13 (short types-II)

27. Explain the market demand for a good.

Ans: Market demand for a good is the aggregate demand of all individuals for that commodity at various possible price and in a given time period. Since market demand is the total demand off all individuals, it is influenced by all those factors that affect individuals demand, market demand is influenced by factors like population, distribution of income, season and weather.

28. Mention the factors determining price elasticity of demand for goods.

Ans: The factors determining price elasticity of demand for goods are:

(i) Availability of close substitutes: If close substitute of a good are really available, its price elasticity of demand is likely to be high, because even a very small increase in price will make consumers to switch over to other goods in big way and vice versa.

(ii) Habits: Habits also play a role in the determination of elasticities if a person has developed the habit of smoking, he may not be able to reduce his consumption of cigarettes even when the price of cigarettes goes up. His demand for cigarettes will be inelastic.

(iii) Period of time: If the price of a product rises, consumers will search for cheaper substitutes. The longer period they have, the more likely they are to find the one.Demand will, therefore, more price elastic in the long run.

29. Suppose, when the price of a good is Rs. 4, the quantity demanded is 25 units. As price increase to Rs. 5, the quantity demanded falls to 20 units. Calculate the price elasticity of demand.

SHORT ANSWER QUESTIONS TYPE -1: (MARKS : 4)

1. The monthly income of consumer is Rs. 300 and he spend his entire income on two commodities x and y. Price of x and y Rs. 15 and Rs. 25 respectively. Let the income of the consumer increase to Rs. 450. Show the impact of the changes in income the budget line.

Ans: In the first stage when consumer income is Rs. 300

Purchase of X = 300/15=20

and purchase of Y = 300/25 = 12

Now, Given, the consumer’s income changes to Rs. 450

Then, Purchases of  X= 450/15 = 30

Purchase of Y = 450/25 = 18

Thus, the impact is that the budget line will shifts to the right parallel.

2. A consumer with his given money income can buy 20 units of the commodity x and 12 units of the commodity y. Given the prices of x and y as Rs. 15 and Rs. 25 respectively. Find out the income level of the consumer.

Ans: Given Pₓ =15, Qx= 20

Py=25, Qy= 12

Now, we know that

M=Pₓ Qₓ+ Py

⇒ M=15.20+25.12

∴ M (income) = 600

3. Suppose there are two consumers in a market. The demand function of the first consumer is ___

d₁ (P)= 30 P ( When P ≤ 30)

and  d₁ (P)= 0 (When P > 30)

demand function of the second consumer is _

d₂ (P)=20 – 2P (WhenP  ≤ 10)

and d₂ (P)=0 (WhenP>10)

Find out the market demand function.

Ans: D₁m(P) = (20-P).2…. for P≤20

D₁m(P)=0….for P ≤ 20

D₂m(P)=(30-2P)2 for P≤15

D₁(P) = 0…..for P>15

4. Suppose there are 10 consumers in a market and they have the similar demand functions as given below :

d(P)=20-2P;  if P≤10

and d(P)=0; if P>10

Find out the market demand function.

Ans: The market demand function is__

Dm(P) = (10-3P)(20)……….. for P≤ 10/3

and Dm(P) = 0 for P> 10/3

5. Let there be 10 consumers in a market and they have the similar demand function as given below:

d (P)=20-2P, if P≤ 20/7

and d (P)=0, When P> 20/7

Find out the market demand function.

Ans: The market demand function is:

Dm(P) = (10-3P)(20)……..for P≤ 10/3

and Dm(P)=0 for P> 10/3

6. Distinguish between substitutes and complementary good,s with examples.

Ans: There is a relation between the quantity of a good that a consumer chooses and the price of a related good. The quantity of a good that the consumer chooses can, increase or decrease with the rise in the price of a related good. But there are some goods which are consumed together. These type of goods are complementary to each other. Examples of goods which are complementary to each other are tea and sugar, shoes and socks, pen and ink etc.

There is a relation between the quantity of a good that a consumer chooses and the price of a related good. The quantity of a good that the consumer chooses can increase or decrease with the size in the price of a related good. All goods are not consumed together. The goods which are not consumed together are called substitutes for each other. For example, tea and coffee are substitutes of each other. If the price of coffee increases, the consumers will shift to tea.

7. With his given money income, a consumer can buy 10 units commodity X or 15 units of commodity Y. If the income of the consumer 150, find out the prices of commodity X and commodity Y.

Ans: Price of x= 150/10=15

Price of y= 150/15=10

8. Suppose there are two consumers in a market and they have the similar demand function as given below―

d(p)=50-5p ; if p ≤10

d(p)=0; when<10

Find out the market demand function.

Ans: Same as Q. No. 3 (Short Type – 1)

9. A consumer with his given money income can buy either 20 units of commodity x or 40 units of commodity y. If the price of commodity x is Rs. 20 per unit and the price of commodity y is Rs. 10 per unit, find out the income of the consumer.

Ans: Income of the consumer is

M=20×20 +40 x 10=400+400-800

10. The monthly income of a consumer is Rs. 400 and he spends his entire money income on two commodities x and y. The price of commodity x is Rs. 20 and that of y is Rs. 5. In the basis of this―

(ii) Draw the budget line of the consumer.

(iii) What will happen to the budget line, if the price of commodity y decreases to Rs. 20, while the income of the consumer and the price of commodity x remain constant.

Ans: Same as Q. No. 1, (Short Type – 1)

11. Explain Monotonic Preferences with an example.

Ans:According to monotonic preferences a consumer gets more satisfaction from more quantity of a commodity compared to its less quantity. For example consider a combination of two goods (x and y)

2x+2y. This combination has more of both goods as compared to 1x+ly.

So the consumer prefers the combination 2x+2y to combination 1x+1y. Also when compared with combination 2x+1y he prefers combination 2x+2y as it has more of y and equal amount of good x. Similarly compared to 1x+2y, he prefers combination 2x+2y, as it has more of x good and equal amounts as y good. Preferences of this kind are called monotonic preferences.

12. Suppose there are 10 consumers in a market and they have similar demand formation as given below.

d(p)=20-2p ; if p≤10

d(p)=0; if p<10

Ans: Market demand function

dm(p)=10(20-2P) when p≤10 =200-2 when p≤10 and dm (P)=0 when P>10

13. Suppose there are two consumers in a market of a commodities. The demand function of two consumers as given below:

d₁(p)=20-p when p≤ 20 and 0 when p> 20

d₂(p)=30-2p when p≤15 and 0 when p>15

Ans: Given,

d₁ (P)=20-P, P≤20, P> 20, d₁=0 d₂(P)=30-2P, P≤15, P>15, d₂ = 0

We know, Market demand (Md)=d₁+d₂

When, P> 20, d₂ = 0 and d₂=0

∴ Md = 0

When, P <15

d₁ = 20-P , d₂=30-2p

∴ Md=20-P+30-2P = 50-3P

When P>15,  d₂ = 20-P

d₂ = 0

∴ Md=20-P

14. The market demand for a good at Rs. 4 is 100 units. The price rises and as a result its demand falls to 75 units. Find out the new price if the price elasticity of demand for the good I.

Ans: Given values:

15. Distinguish between change in quantity supplied and change in supply.

Ans: A change in quantity supplied is a movement along the upward sloping supply curve in response to a change market price (holding all other things constant- the ceteris paribus assumption). Contrast this to a change in supply (a shift in the supply curve), which is caused by a change in the producers costs.

16. Distinguish between supply and stock.

Ans: Difference between Supply and Stock:

(a) While supply refers to the quantity which the seller is prepared to sell in the market at given price at any point of time while stock refers to total available quantity with the seller at any given point of time.

(b) An example of stock will suppose as a human we have 24 hours which is fixed and it can be considered as stock and out of those 24 hours an individual is willing to supply 4 hours at \$20 for a particular task and at \$25 an individual is willing to supply 6 hours for a particular task. Hence supply keeps fluctuating depending on the price while stock is fixed.

(c) Supply can be increased and decreased depending on the price prevailing in the market while stock at a particular point of time is fixed  and it cannot be increased or decreased, in simple words supply is dependent on the price while the stock is not dependent on the price.

(d) Supply can be equal to or less than stock but it cannot be greater than stock as in the above example no matter what price is the market willing to pay you cannot increase the working hours beyond the 24 hours stock.

17. Explain the law of supply with the help of a supply schedule.

Ans: The Law of Supply states that other things being equal, quantity supplied increases with the increase in price and decreases with the decrease in price of a commodity.

It can be explained with the help of following schedule and diagram:

The supply schedule shows the positive relationship between price and quantity supplied. This is in accordance with the Law of Supply.

SS is the supply curve sloping upward. It shows a positive relationship between price and quantity supplied of a commodity.

When price increases from Rs 10 to Rs 20, quantity supplied increases from 100 to 200 units.

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