Hello Students. Are you Searching for NCERT Solutions for Class 12 Economics Chapter 2? If yes then you are most welcome to NCERTian. Here we have provided you with the complete Question and Answers of Chapter 2: Theory of Consumer Behaviour, from Micro Economics textbook. These solutions are written by expert teachers and faculties keeping the need of students in mind.
|Chapter||2. Theory of Consumer Behaviour|
|Category||NCERT Solutions for Class 12|
The NCERT Solutions for Class 12 Economics cover all the questions pertaining to the subject in a very clear and lucid manner. Apart from being highly accurate, these solutions are also very easy to memorize. These solutions are written as per the latest CBSE syllabus and are helpful in clearing doubts. On this solution page, we have provided you with complete overview of the concepts and methods covered in the Chapter 2 of Micro Economics – Theory of Consumer Behaviour.
NCERT Solutions for Class 12 Economics Chapter 2
Theory of Consumer Behaviour Solutions
Q1) What do you mean by the budget set of a consumer?
Answer) A budget set of a consumer is a bundle of two or more goods in certain quantities and combinations that is desirable and affordable for the consumer based on their price range. A budget set is also called as an opportunity set.
Q2) What is budget line?
Answer) The budget line depicts all of the bundles that cost the same as the consumer’s income. The budget line shows two alternative sets of products that a person can purchase dependent on his or her income and commodities costs.
Q3) Explain why the budget line is downward sloping.
Answer) With a limited income, the customer can increase the consumption of one good only by decreasing the consumption of the other good. This is why a budget line is downward sloping.
Q4) 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?
Let us assume that the consumer wants to buy X amounts of Good 1 and Y amount of Good 2. As given, Good 1 is priced at Rs.4 and Good 2 is priced at Rs.5. The income of the consumer is Rs.20.
Answer i) The budget line can be represented using the equation 4X + 5Y = 20
Answer ii) If the consumer spends the entire income on good 1, the value of Y will be zero.
Hence, 4X + 5(0) = 20
X = 20/4 = 5
Therefore, 5 units of Good 1 can be bought.
Answer iii) If the consumer spends the entire income on good 2, the value of X will be zero.
Hence, 4(0) = 5Y = 20
Y = 20/5 = 4
Therefore, 4 units of Good 2 can be bought.
Answer iv) The slope of the budget line can be determined by the units of good 1 that the consumer is willing to give up for gaining equivalent amounts of good 2.
P1/P2 = -4/5 = 0.8
Q5) How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?
Answer) When there is an increase in income, consumers can afford more amounts of both good 1 and good 2. Therefore, there will be a shift in the budget line towards the right direction.
Q6) How does the budget line change if the price of good 2 decreases by a rupee but the price of good 1 and the consumer’s income remain unchanged?
Answer) If the price of good 2 decreases, the consumer will be able to consume more amounts of good 2. Therefore, there will be a shift upwards along the vertical axis.
Q7) What happens to the budget set if both the prices as well as the income double?
Answer) The budget line will not change if the prices and income are both doubled.
Q8) Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?
According to the question,
Budget line = M = P1x1 + P2x2
therefore the budget equation is M = 6(6) + 8(8)
therefore the income M = 36+64= 100
So, the consumer’s income is Rs. 100
Q9) 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.
Answer i) The bundles that are available to the consumer are (0,0) (0,1) (0,2) (0,3) (0,4) (1,0) (1,1) (1,2) (1,3) (2,0) (2,1) (2,2) (3,0) (3,1) (4,0)
Answer ii) (0, 4) (1, 3) (2, 2) (3, 1) and (4, 0) are all bundles that costs the customer exactly Rs.40
Q10) What do you mean by ‘monotonic preferences’?
Answer) If and only if, a consumer’s preferences are monotonic between any two bundles. The consumer prefers bundles that contain more of at least one good and no less of the other good than the other bundle. More of a commodity is always preferred by a rational customer since it provides him with a higher level of enjoyment.
Q11) If a consumer has monotonic preferences, can she be indifferent between the bundles (10, 8) and (8, 6)?
Answer) The bundle (10, 8) contains more quantities of both the products. Therefore, if a consumer has monotonic preferences, they would prefer the bundle (10, 8) over the bundle (8, 6). So, the consumer cannot be indifferent between the two bundles.
Q12) 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)?
Answer) If the consumer’s preferences are monotonic, the bundles can be ranked as follows:
- Rank 1 – (10, 10)
- Rank 2 – (10, 9)
- Rank 3 – (9, 9)
Bundle (10, 10) will always have a higher preference for the monotonic consumer.
Q13) Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Answer) No, the preferences of the friend are not monotonic. If the friend had a monotonic preference, they would not be indifferent to the bundles (5, 6) and (6, 6). Since the bundle (6, 6) has more quantities of both the goods, they would naturally prefer it over the other bundle.
Suppose there are two consumers in the market for a good and their demand functions are as follows:
d1 (p) = 20 − p for any price less than or equal to 20 and d1 (p) = 0 at any price greater than 20.
d2 (p) = 30 − 2p for any price less than or equal to 15 and d1 (p) = 0 at any price greater than 15.
Find out the market demand function.
Suppose there are 20 consumers for a good and they have identical demand functions:
D (p) = 10 − 3p for any price less than or equal to and d1 (p) = 0 at any price greater than.
What is the market demand function?
Q16) Consider a market where there are just two consumers and suppose their demands for the good are given as follows:
Calculate the market demand for the goods.
Answer) The market demand can be calculated as follows
|1||9||24||9 +24 = 33|
|2||8||20||8 + 20 = 28|
|3||7||18||7 + 18 = 25|
|4||6||16||6 + 16 =22|
|5||5||14||5 + 14 + 19|
|6||4||12||4 + 12 = 16|
Q17) What do you mean by a normal good?
Answer) A normal good is a good for which the demand increases with an increase in the consumer’s income or wages.
Q18) What do you mean by an ‘inferior good’? Give some examples.
Answer) When a consumer’s income rises, demand for inferior goods decreases. As a result, the demand for lower-quality goods rises in tandem with consumer affordability.
Ex: cheap cigarettes, low-cost furniture and inexpensive food fast items.
There are always better alternatives to these products which are priced higher. So, when the consumer’s affordability increases, the need for inferior goods decreases.
Q19) What do you mean by substitutes? Give examples of two goods which are substitutes of each other.
Answer) Substitutes are the goods of the same category which can be used interchangeably to some extent. For example, let us consider the products tea and coffee. Both of these products fall under the same classification of hot beverages, fulfil similar needs and are also similarly priced. Hence, a consumer will shift to coffee if the price of tea increases and vice versa.
Q20) What do you mean by complements? Give examples of two goods which are complements of each other.
Answer) Complements are goods which are usually consumed together and complement each other. An example would be tea and sugar or printers and cartridges. The prices of complementary goods also affect each other’s demand. For example, if the price of sugar goes up, it is likely that the demand for tea would decrease significantly.
Q21) Explain price elasticity of demand
Answer) The price elasticity of demand is a measurement of how a change in price influences consumer demand for a product. It’s computed by dividing the change in a product’s needed quantity by the change in the product’s cost.
Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose the price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity.
Q23) Consider the demand curve D (p) = 10 − 3p. What is the elasticity at price 5/3?
Q24) Suppose the price elasticity of demand for a good is −0.2. If there is a 5% increase in the price of the good, then by what percentage will the demand for the good go down?
Q25) Suppose the price elasticity of demand for a good is −0.2. How will the expenditure on the good be affected if there is a 10% increase in its price?
Answer) As the price elasticity of demand, ep, is smaller than one in elastic demand, a rise in the price of the good will result in an increase in expenditure. Because price and expenditure are positively connected in the case of inelastic demand.
Q26) Suppose there was a 4% decrease in the price of a good, and as a result, the expenditure on the good increased by 2%. What can you say about the elasticity of demand?
Decrease in the price of a good = 4%
Increase of expenditure on the good = 2%
Since the price has dropped, the amount spent on the item will rise. This means that the percent change in demand has climbed more than the percent change in pricing has decreased.
The price of the good and the amount spent on it have an inverse relationship.
Thus, the elasticity of demand = %ge change in demand / %ge change in price
That’s it. These were the solutions of NCERT Class 12 Economics Chapter 2 – Theory of Consumer Behavior. Our team hopes that you have found these solutions helpful for you. If you have any doubt related to this chapter then feel free to comment your doubts below. Our team will try their best to help you with your doubts.