Class 12 Micro Economics - Chapter Theory of Consumer Behaviour NCERT Solutions | Consider the demand for a good. At price

A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.

Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?

What is budget line?

Suppose there are 20 consumers for a good and they have identical demand functions: 

d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.

Consider the demand curve D (p) = 10 – 3p. What is the elasticity at price 53?

What do you mean by an ‘inferior good’? Give some examples

Suppose a consumer wants to consume two goods which are available only in
integer units. The two goods are equally priced at Rs 10 and the consumer’s
income is Rs 40.
(i) Write down all the bundles that are available to the consumer.
(ii) Among the bundles that are available to the consumer, identify those which cost her exactly Rs 40.

Explain why the budget line is downward sloping.

Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?

What do you mean by substitutes? Give examples of two goods which are substitutes of each other.

Explain the concept of a production function

What would be the shape of the demand curve so that the total revenue curve is?

(a) A positively sloped straight line passing through the origin?

(b) A horizontal line?

Explain market equilibrium.

Discuss the central problems of an economy.

What are the characteristics of a perfectly competitive market?

What is the total product of input?

From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:

When do we say that there is an excess demand for a commodity in the market?

What do you mean by the production possibilities of an economy?

How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?

Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.

If the price of a substitute Y of good X increases, what impact does it have on the equilibrium price and quantity of good X?

When does a production function satisfy increasing returns to scale? 

Consider a market with two firms. The following table shows the supply schedules of the two firms: the SS₁ column gives the supply schedule of firm 1 and the SS₂ column gives the supply schedule of firm 2. Compute the market supply schedule.

At what level of price do the firms in a perfectly competitive market supply when free entry and exit is allowed in the market? How is the equilibrium quantity determined in such a market?

At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?

Explain the concepts of the short run and the long run. 

How does an increase in the number of firms in a market affect the market supply curve?

Suppose the demand and supply curves of salt are given by:

(a) Find the equilibrium price and quantity.

(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is qs = 400 + 3p

How does the equilibrium price and quantity change? Does the change conform to your expectation?

(a) Suppose the government has imposed at ax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity? 

Briefly explain the concept of the cost function.