# Consumer s Equilibrium

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1 ECONOMICS (CLASS 12) HOLIDAYS HOMEWK ASSIGNMENT Q1 ) The demand for the good at price of Rs 4 is 25. When the price of the good increases to Rs 5, the demand for the good falls to 20 units. Calculate price elasticity of demand 2) The price of commodity is Re. 15 per unit and its quantity demanded is 500 units Its quantity demanded rises by 80 units as a result of a fall in its price by 20 per cent. Calculate its price elasticity of demand. Is its demand inelastic? Give reason for your answer. 3)The price of a commodity is Rs 50 per unit and its quantity demanded is 500 units its price rises to Rs 60 per unit and quantity demanded falls by 90 units. Calculate its price elasticity of demand. Is its demand elastic? Give reasons for your answer. 4) Price elasticity of demand for a good is (-2).The consumer buys a certain quantity of this good at a price of Rs 8 per unit. When the price falls he buys 50 percent more quantity. What is the new price? 5) As a result of a fall in the price of a commodity from Rs 7 per kg to Rs 5 per kg, the total expenditure on it rises from Rs 3,500 to Rs 6,250. Comment on price elasticity of demand by total outlay method and by proportionate method. 6) When the price of the commodity is Rs. 10 the consumer prefers to consume 25 units of the commodity. Given that the price elasticity of demand for the commodity is 2, calculate the quantity the consumer will buy at a price of Rs. 8 per unit. 7) A seller earns revenue of Rs from the commodity when the price of the commodity is Rs. 10 per unit. If the price elasticity of demand for the commodity is 0.5, calculate the revenue earned by the seller when the price is Rs. 15 per unit. Q8) If price falls by 10% and total expenditure rises by 10%, elasticity of demand would be one. (true/false) Q9) When the price of commodity falls by Rs.2 per unit, its quantity demanded increases by 10 units. Its price elasticity of demand is (-) 1. Calculate demand at the price before change which was Rs.10 per unit. Q10) Calculate price elasticity of demand if demand increases from 4 units to 5 units due to fall in price from Rs. 10 to Rs. 8. Q11) The demand for good x and y have equal price elasticity. The demand of x rises from 100 units to 250 units due to a 20 percent fall in its price. Calculate the percentage rise in demand of y, if its price falls by 8 percent. Q12) The price elasticity of demand of good x is half the price elasticity of demand of good y. A 25% rise in its price of good y reduces its demabnd from 400 to 300 units. Calculate percentage rise in demand of good x when its price falls from Rs.10 to Rs. 8 per unit. Consumer s Equilibrium

2 Q.1)a) Define the terms : Utility, Total Utility, Marginal Utility, Equilibrium, Consumer's Equilibrium b) What is monotonic preference? c) Can a consumer go beyond the budget line? d) What does slope of IC show? ] e) How is total utility derived from marginal utility. f) When MU becomes zero, what is the value of TU Q2) For a consumer to be in equilibrium why must marginal rate of substitution be equal to the ratio of prices of the two goods. Q3) If a consumer has monotonic preferences, can he be indifferent between the bundles (10,8) and (8,6). Q4)What is meant by consumer s equilibrium? State its condition in case of a single commodity. (Q.5) Define marginal utility. State the law of diminishing marginal utility. Q.6) Explain consumer s equilibrium, in case of a single commodity, with the help of a utility schedule. (Q.7) A consumer consumes only two goods. Explain his equilibrium with the help of utility approach. (Q8) Using indifference curves approach, explain the conditions of consumer s equilibrium. Why the consumer is in equilibrium when he buys only that combination of the two goods that is shown at the point of tangency. Q.9) State and explain the characteristics of indifference curves. Q.10) Explain the assumptions of Indifference curve? Q.11) State the properties of Indifference curve. Q.12) What happen to budget set when both prices as well as income is doubled? Q.13)Sonu has RS 35 with him. He wants to purchase two commodities--- X & Y. the market price of both X & Y is RS 5 per. The following table presents the marginal utilities of the two commodities. Find out how many units of X & Y Sonu should purchase to get maximum satisfaction. Units of Marginal utility for commodity commodity X Marginal utility for commodity Y

3 (Q.14) State the relationship between MU and TU on the basis of a utility schedule. Q.15) If the MU derived from the commodity is greater than the price of the commodity then how it will affect the consumption behaviour of the consumer? Q16)The marginal utility schedule of an individual B is given. Derive his total utility schedule. Units consumed Marginal Utility (Q.17)The total utility schedule of an individual A is given. Derive his marginal utility schedule. Amount consumed Total Utility (Q.18) Explain the condition of consumer s equilibrium when the marginal utility of a product in terms of money is equal to its price. Q19 A consumer consumes only two goods X and Y. His income is Rs. 24 and the price of two goods is Rs 4 and Rs. 2 respectively. Answer the following questions; 1) Can the consumer afford a bundle of 4X and 3Y. 2) What will be the MRSxy when the consumer is in equilibrium. 3) How many units of X will be consumed if no Y is consumed 4) How many units of Y will be consumed if no X is consumed 5) Write down the equation of the budget line. 6) Calculate the slope of the budget line. PRODUCTION FUNCTION Q1 Define the following terms: 1) Production function

4 2) Total product 3) Average product 4) Marginal product Q2 Explain the concept of short run and long run. Q3 Differentiate between fixed input and variable input/ Q4 Give two examples of fixed input and variable input. Production function II Q1 Explain the relationship between MP and AP with schedule and diagram. Q2 Explain the relationship between MP and TP with schedule and diagram. Q3 How TP changes due to change in MP.explain. Q4 Explain how mp changes due to change in tp. PRODUCTION FUNCTION III Q1 State and explain the law of variable proportion. Explain the law of variable proportion with the help of TP and MP. Explain the law of return to a variable factor. State and explain the changes in the behavior of TP and MP when in production process one factor is variable and other are fixed. Q2State and explain the law of decreasing return. Q3 What are the different phases in behavior of TP in law of variable proportion. PRODUCTION FUNCTION VI (BASED ON LAW)

5 Q1 On the basis of information given in the following table, what can you say about the nature of returns of variabl factor in various level of output? Units of TP Q2 Identify the different phases in the law of variable proportion from the following table: Units of TP Q3 Identify the different phases in the law of variable proportion from the following table Units of TP Q4 Identify the phase in the law of variable proportion from the following table Units of TP Q5 Identify the phase in the law of variable proportion from the following table Units of TP PRODUCTION FUNCTON IV Q1 Answer the following questions: 1) When MP increases what happen to AP 2) When AP is maximum, is MP is less than, equal to or greater than AP? 3) Does TP increases at decreasing rate a) When AP is rising b) When MP is rising

6 c) When AP begins to fall 4) When MP is zero what is the value of TP. 5) Is it possible that AP is increasing but MP is decreasing? Q2 Sate true or false and give reasons for your answer: 1) When there are diminishing return to a factor, TP always decreases 2) TP will only increase only when MP increases 3) Increase in TP always indicates that there is increasing return to a factor. 4) When there are diminishing return to a factor MP and TP both always falls. (PRACTICAL QUESTIONS BASED ON TP,AP AND MP) Q1 Calculate AP and MP: Units of TP Q2 Calculate AP and MP: Units of TP Q3 Complete the following table: Units of TP AP MP Q4 Calculate TP from the following table: Units of AP Q5 Calculate TP from the following table: Units of MP Q6 Complete the following table:

7 Units of TP MP AP Q7 Complete the following table: Units of Units of TP AP MP Capital Q8 Study the following table: Units of employed on one acre of land Total Product Find out: 1) The average product when 6 unit of are employed; and 2) The marginal product when 5unit of are employed.

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