Theory of Consumer's Demand-Indifference Curve Analysis and Utility Function (IEcoS (Economic Services) Economics Paper-1): Questions 1 - 4 of 4

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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

Corner solution in the case of concave indifference curves

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Question number: 2

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

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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 th

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Question number: 3

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

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Appeared in Year: 2011

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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

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Question number: 4

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

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Appeared in Year: 2016

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Consider the utility function as , where and are two commodities on which the consumer spends his entire income of the month. Let the price per unit of and be Rs. 40 and Rs. 16 respectively and the monthly income of the consumer be Rs. 4,000. Find out the optimal quantities of and .

Explanation

Eq = m of budget line; (M = income) using Lagrangian method, we get

Let it be Lagrangian multiplier

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