Class 11 Economics – Chapter 2: Consumer’s
Equilibrium
Comprehensive & Expanded Question Bank with Detailed
Answers
Section A – Multiple Choice Questions (1 mark
each)
Q1. According to the Law of Diminishing Marginal Utility (DMU):
Correct Answer: (b) Marginal utility decreases as more units of a good are consumed
Q2. Which of the following is a condition of consumer’s equilibrium under utility approach?
Correct Answer: (c) MUx/Px = MUy/Py
Q3. Indifference curve is:
Correct Answer: (a) Downward sloping and convex to the origin
Q4. Which of the following cannot be the shape of an indifference curve?
Correct Answer: (d) Upward sloping
Q5. Budget line shifts when:
Correct Answer: (c) Money income or price of goods change
Q6. Consumer’s equilibrium refers to:
Correct Answer: (b) Situation of maximum satisfaction
Q7. Law of DMU was given by:
Correct Answer: (a) Gossen
Q8. If MUx/Px > MUy/Py, the consumer should:
Correct Answer: (b) Buy more of X and less of Y
Q9. At equilibrium, the slope of indifference curve equals:
Correct Answer: (c) The slope of the budget line
Q10. Indifference curves never:
Correct Answer: (d) Intersect each other
Q11. If income doubles and prices also double, the budget line:
Correct Answer: (b) Remains unchanged
Q12. Which concept is measured by Marginal Rate of Substitution?
Correct Answer: (a) The willingness to give up one good for another
Q13. If a consumer’s indifference curve is concave to the origin, it violates:
Correct Answer: (c) Law of diminishing MRS
Q14. When does a budget line rotate?
Correct Answer: (b) When price of one good changes while income and other price remain constant
Q15. The point of tangency between indifference curve and budget line represents:
Correct Answer: (d) Consumer’s equilibrium
Section B – Very Short Answer Questions (1 mark
each)
Q1. Define utility.
Answer: Utility is the want-satisfying power of a commodity.
Q2. What is marginal utility?
Answer: Marginal utility is the additional utility obtained from consumption of one more unit of a
commodity.
Q3. State the Law of Diminishing Marginal Utility.
Answer: As consumption of a commodity increases, marginal utility derived from each additional
unit decreases.
Q4. What is an indifference curve?
Answer: It is a curve showing different combinations of two goods giving the same level of
satisfaction to the consumer.
Q5. What is meant by monotonic preference?
Answer: A consumer prefers a bundle with more of at least one good without less of the other.
Q6. What is an indifference map?
Answer: A set of indifference curves showing different levels of satisfaction.
Q7. What is the slope of budget line called?
Answer: It is called the Price Ratio (Px/Py).
Q8. Define total utility.
Answer: It is the sum total of satisfaction derived from consumption of all units of a good.
Section C – Short Answer Questions (2 marks
each)
Q1. State two assumptions of the Law of Diminishing Marginal Utility.
Answer: 1. Consumption of identical units. 2. Continuous consumption without time gap.
Q2. Define Budget line.
Answer: It shows all possible combinations of two goods that a consumer can purchase with given
income and prices.
Q3. Why is an indifference curve convex to the origin?
Answer: Due to diminishing marginal rate of substitution (MRS).
Q4. Differentiate between total utility and marginal utility.
Answer: Total utility is the total satisfaction from all units consumed, while marginal utility is the
additional satisfaction from one more unit.
Q5. What happens if MUx/Px > MUy/Py?
Answer: The consumer will increase consumption of X and reduce Y until equilibrium is reached.
Q6. Write two assumptions of indifference curve analysis.
Answer: 1. Rational consumer. 2. Monotonic preferences.
Section D – Medium Answer Questions (3 marks
each)
Q1. Explain the consumer’s equilibrium condition under utility analysis (cardinal approach).
Answer: According to utility analysis, the consumer is in equilibrium when MUx/Px = MUy/Py = MU
of money. This ensures maximum satisfaction is achieved given the income constraint. If ratios
differ, the consumer will reallocate expenditure.
Q2. What is Marginal Rate of Substitution (MRS)? Explain with an example.
Answer: MRS is the rate at which a consumer is willing to give up one good for another while
maintaining the same satisfaction. Example: If a consumer gives up 2 apples for 1 orange, MRS =
2. Due to diminishing MRS, this value falls as consumption of one good rises.
Q3. State three properties of indifference curves.
Answer: 1. Indifference curves are downward sloping (to consume more of one good, less of
another must be sacrificed). 2. They are convex to the origin (due to diminishing MRS). 3. Higher
indifference curves represent higher satisfaction.
Q4. Distinguish between budget line and budget set.
Answer: Budget line shows exact combinations affordable, while budget set includes all
combinations a consumer can afford (inside + on the budget line).
Section E – Long Answer Questions (5 marks each)
Q1. Explain consumer’s equilibrium using indifference curve and budget line approach with
diagram.
Answer: A consumer attains equilibrium when the budget line is tangent to the highest indifference
curve possible. At this point, slope of IC (MRS) = slope of budget line (Px/Py). Diagram explanation:
Indifference curve touches budget line at one point, ensuring no higher satisfaction is possible with
given income.
Q2. Explain the Law of Diminishing Marginal Utility with the help of a schedule and diagram.
Answer: The law states that as a consumer consumes more of a good, marginal utility decreases.
Example: First unit = 20 utils, second = 15 utils, third = 10 utils, fourth = 5 utils, fifth = 0. Diagram
explanation: MU curve slopes downwards, eventually reaching zero and negative values.
Q3. What are the conditions for consumer’s equilibrium under Indifference Curve Analysis?
Answer: 1. Budget line must be tangent to indifference curve. 2. Slope of IC (MRS) = Slope of
budget line (Px/Py). 3. Indifference curve must be convex to origin (diminishing MRS). Only then
consumer achieves maximum satisfaction.
Q4. Critically explain assumptions of Indifference Curve Analysis.
Answer: 1. Rational consumer. 2. Preferences are complete and transitive. 3. Goods are divisible.
4. Monotonic preferences (more is better). 5. Diminishing MRS. Criticism: Unrealistic assumptions
like rationality, perfect divisibility, and complete knowledge.
