NCERT Solutions for Class 12 Micro Economics Consumer Equilibrium

NCERT Solutions for Class 12 Micro Economics Consumer Equilibrium

NCERT Solutions for Class 12 Micro Economics Consumer Equilibrium is designed and prepared by the best teachers across India. All the important topics are covered in the exercises and each answer comes with a detailed explanation to help students understand concepts better. These NCERT solutions play a crucial role in your preparation for all exams conducted by the CBSE, including the JEE.

NCERT TEXTBOOK QUESTIONS SOLVED

1. Question 1. What do you mean by the budget set of a consumer? Or Define Budget Set. [CBSE 2011, 13] [1 Mark]

Ans. Budget set is the collection of all bundles of goods that a consumer can buy with his income at the prevailing market prices

2. What is Budget Line? [CBSE 2011, 13, 11C, A1 10][1 Mark]

Ans. Budget line is a graphical representation which shows all the possible combinations of the two goods that a consumer can buy with the given income and prices of commodities. It is also called consumption possibility line.

3. Question 3. Explain why budget line is downward sloping? Or Why is budget line negatively sloped? [CBSE 2011 C][l Mark]

Ans. 'Budget line is downward sloping because if a consumer wants to buy more of one commodity, he has to buy less of other goods, given money income.

4. 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.

Ans. Write down the equation of the budget line. How much quantify of good 1 can the consumer consume if she spends her entire income on that good? How much of good 2 can she consume if she spends her entire income on that good? What is the slope of the budget line? [3-4 Marks]

  • Let the two quantities of goods be X and Y. We are given Px = Rs 4, P = Rs 5, Consumer’s income (M) = Rs 20. Budget line equation is,
  • Px .X + Py .Y = M or = 4X + 5Y = 20
  • If quantity consumed of good Y = 0, Budget equation becomes,
  • Px.X + zero = M = 4.X = 20 = X = 20/4 = 5 units
  • If quantity consumed of good X = 0, Budget equation becomes,
  • Zero + Py.Y = M
  • or = 5Y = 20 = Y = 20/5 = 4 units.
  • Slope of budget line = Px/Py = 4/5 = 0.8
5. What happens to the budget set if both the prices as well as the income double? [ 1 Mark]

Ans. There will be no change in the budget line. Let us understand this with the help of an example: Suppose,the price of goods 1 rises from Rs 4 to Rs 8 and that of goods 2 rises from Rs 5 to Rs 10. Income also rises from Rs 20 to Rs 40. With double increase in prices and income, intercepts on both X-axis and Y-axis will remain unchanged at 5 units (goods 1) and 4 units (goods 2) respectively. Slope of budget line will also remain the same. Therefore, there will be no change in the budget set and the budget line

6. 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? [1 Mark]

Ans. Budget equation is given as: Px.X + Py .Y = M Let good 1 be X and good 2 be Y Putting the values, we get, (6).(6) + (8).(8) = 36 + 64 = Rs 100

7. What are monotonic preferences? [AI 2011 C][l Mark]

Ans. Consumer’s preferences are assumed to be such that between any two bundles (x1, x2) and (y1, y2), if (x1, x2) has more of at least one of the good and no less of the other good as compared to (y1, y2), the consumer prefers (x1, x2) to (y1, y2). Preferences of this kind are called monotonic preferences.

8. If a consumer has monotonic preferences, can she be indifferent between the bundles (10, 8) and (8, 6)? [1 Mark]

Ans. No, if a consumer has monotonic preferences, bundle (10, 8) is preferred to bundle (8, 6) as bundle (10, 8) has more units of both the goods.

9. Suppose a consumer's preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9), (9, 9). [1 Mark]

Ans. If a consumer has monotonic preferences then,
Bundle (10, 10) is monotonically preferred to bundle (10, 9) and bundle (9, 9).
Bundle (10, 9) is monotonically preferred to bundle (9, 9).

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

Ans. No, the preferences of my friend are not mono tonic since bundle (6, 6) should be monotonically preferred to bundle (5, 6)

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