Theory of Consumer's Demand (IEcoS (Economic Services) Economics Paper-1): Questions 1 - 6 of 21

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Question number: 1

» Theory of Consumer's Demand » Indifference Curve Analysis and Utility Function

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Appeared in Year: 2011

Essay Question▾

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What do you mean by a corner solution? In the case of perfect complementary goods, where do you get the corner solution?

Explanation

The corner solution occurs when the consumers’ preferences are such that the utility is maximized just by consuming only one of the two goods. It is inevitable in the case of concave ICs and occurs in the case of Convex ICs when the Budget Line is either steeper or less steep than the ICs.

Graph shows the corner solution

Graph Shows the Corner Solution

Shows the corner solution in graph

Shows the Corner Solution in Graph

… (61 more words) …

Question number: 2

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2011

Essay Question▾

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Define the compensated Demand Curve. How does it differ from the uncompensated Demand curve?

Explanation

  • Compensated Demand Curve is a demand curve that shows the change in demand of a good when the price changes but the real income or purchasing power is held constant.
  • While the compensated demand curve demonstrates only the substitution effect, the uncompensated demand curve describes both the substitution and income effects of the changes in price o

… (16 more words) …

Question number: 3

» Theory of Consumer's Demand » Indifference Curve Analysis and Utility Function

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Essay Question▾

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Discuss cross elasticity of demand. Based on such definition, how can you distinguish between substitute and complementary goods?

Explanation

Definition:

The measure of responsiveness of the demand for a good towards the change in the price of a related good is called cross price elasticity of demand. It is always measured in percentage terms.

Cross Elasticity of demand describes the change in demand of one good in response to the change in the price of another good. It is given by the rat

… (123 more words) …

Question number: 4

» Theory of Consumer's Demand » Indifference Curve Analysis and Utility Function

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Appeared in Year: 2011

Essay Question▾

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Consider the utility function where and are the quantities of two commodities on which the consumer spends his monthly income Rs. 5,000. If the price per unit of and be 50 and 20 respectively, find out the optimal quantities of and ?

Explanation

Utility function is given as follows:

MU of is

MU of is

Shows the utility function in graph

Shows the Utility Function in Graph

  • At the target point E, slope of indifference curve (IC) given by MRS (marginal rate of substitution)

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Question number: 5

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2011

Essay Question▾

Describe in Detail

Define income effect, substitution effect and price effect of any change in price. Show that the price effect can be decomposed into the income effect· and the substitution effect.

Explanation

  • Substitution effect means the change in the demand of a good due to a change in the rate of exchange between two goods (relative prices) holding the purchasing power constant. On the other hand, Income effect is the change in the demand due to a change in the real income while the relative prices are held constant.

  • Price effect is the sum of substit

… (278 more words) …

Question number: 6

» Theory of Consumer's Demand » Marginal Utility and Demand

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Appeared in Year: 2013

Essay Question▾

Describe in Detail

If the law of demand is P, where p is price and x is quantity demanded. Express price elasticity of demand, total revenue and marginal revenue as functions of x.

Explanation

Taking log of each side, we get:

Total revenue

Differentiating TR function, we get:

Developed by: