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Question
State the following statements are True or False:
1. Utility depends upon intensity of want.
2. Utility is the basis of demand.
3. MU and TU are equal at the initial stage.
4. The law of diminishing marginal utility explains economic behaviour of a rational consumer.
5. Negative MU denotes more satisfaction.
1. Utility depends upon intensity of want.
2. Utility is the basis of demand.
3. MU and TU are equal at the initial stage.
4. The law of diminishing marginal utility explains economic behaviour of a rational consumer.
5. Negative MU denotes more satisfaction.
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Solution
1) Utility depends upon intensity of want. - True
Explanation:
The above statement is true. Utility is the satisfaction that a consumer expects to derive from the consumption of a particular unit of a good. It depends on the intensity of want of the particular unit of the good. The greater the intensity of want, the greater would be satisfaction that the consumer would derive from the consumption of that unit of the commodity. That is, there is a strong and positive relationship between utility and the intensity of want.
2) Utility is the basis of demand. -True
Explanation:
The above statement is true. Demand for a commodity is based on the utility derived from it. A person will demand a commodity only if it gives him/her some satisfaction or utility, otherwise, it will not be demanded. Therefore, we can say that utility forms the basis of demand for a commodity.
3) MU and TU are equal at the initial stage. -True
Explanation:
Total utility (TU) refers to the aggregate utility, or the summation of utility, derived from the consumption of all the units of a commodity.
Algebraically, TUn = MU1 + MU2 + MU3 +.............. + MUn = ∑MU
At the initial stage i.e. at the first unit of consumption, Marginal Utility (MU) and Total Utility (TU) are equal. That is, MU = TU.
Number of Units Consumed of Commodity (X)
Total Utility (TU) (utils)
Marginal Utility (MU)
MUn = TUn − TUn − 1 (utils)
1
50*
50 − 0 = 50*
2
100
100 − 50 = 50
3
130
130 − 100 = 30
* TU and MU are equal at the initial phase.
4) The law of diminishing marginal utility explains economic behaviour of a rational consumer.
-True
Explanation:
The law of diminishing marginal utility states that: “As a consumer consumes more and more units of a commodity at succession, the marginal utility derived from the consumption of each additional unit of the commodity falls.” Such a behaviour is a rational behaviour. As the consumer has more of a commodity, the intensity of want for additional units goes on decreasing, i.e. utility decreases. No rational consumer would want additional units of the commodity when the intensity of want is decreasing.
5) Negative MU denotes more satisfaction. - False
Explanation:
The above statement is false. In fact, negative marginal utility denotes dissatisfaction. Negative marginal utility implies that the additional unit decreases the total utility derived from the consumption of the commodity.
Explanation:
The above statement is true. Utility is the satisfaction that a consumer expects to derive from the consumption of a particular unit of a good. It depends on the intensity of want of the particular unit of the good. The greater the intensity of want, the greater would be satisfaction that the consumer would derive from the consumption of that unit of the commodity. That is, there is a strong and positive relationship between utility and the intensity of want.
2) Utility is the basis of demand. -True
Explanation:
The above statement is true. Demand for a commodity is based on the utility derived from it. A person will demand a commodity only if it gives him/her some satisfaction or utility, otherwise, it will not be demanded. Therefore, we can say that utility forms the basis of demand for a commodity.
3) MU and TU are equal at the initial stage. -True
Explanation:
Total utility (TU) refers to the aggregate utility, or the summation of utility, derived from the consumption of all the units of a commodity.
Algebraically, TUn = MU1 + MU2 + MU3 +.............. + MUn = ∑MU
At the initial stage i.e. at the first unit of consumption, Marginal Utility (MU) and Total Utility (TU) are equal. That is, MU = TU.
| Number of Units Consumed of Commodity (X) | Total Utility (TU) (utils) | Marginal Utility (MU) MUn = TUn − TUn − 1 (utils) |
| 1 | 50* | 50 − 0 = 50* |
| 2 | 100 | 100 − 50 = 50 |
| 3 | 130 | 130 − 100 = 30 |
* TU and MU are equal at the initial phase.
4) The law of diminishing marginal utility explains economic behaviour of a rational consumer.
-True
Explanation:
The law of diminishing marginal utility states that: “As a consumer consumes more and more units of a commodity at succession, the marginal utility derived from the consumption of each additional unit of the commodity falls.” Such a behaviour is a rational behaviour. As the consumer has more of a commodity, the intensity of want for additional units goes on decreasing, i.e. utility decreases. No rational consumer would want additional units of the commodity when the intensity of want is decreasing.
5) Negative MU denotes more satisfaction. - False
Explanation:
The above statement is false. In fact, negative marginal utility denotes dissatisfaction. Negative marginal utility implies that the additional unit decreases the total utility derived from the consumption of the commodity.
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