Please refer to below Exam Question for Class 12 Economics Chapter 2 Theory of Consumer Behaviour. These questions and answers have been prepared by expert Class 12 Economics teachers based on the latest NCERT Book for Class 12 Economics and examination guidelines issued by CBSE, NCERT, and KVS. We have provided Class 12 Economics exam questions for all chapters in your textbooks. You will be able to easily learn problems and solutions which are expected to come in the upcoming class tests and exams for standard 12th.

Chapter 2 Theory of Consumer Behaviour Class 12 Economics Exam Question

All questions and answers provided below for Exam Question Class 12 Economics Chapter 2 Theory of Consumer Behaviour are very important and should be revised daily.

Exam Question Class 12 Economics Chapter 2 Theory of Consumer Behaviour

Very Short Answer Type Questions

Question. How is Total utility derived from marginal utilities?
Answer. Total utility is derived by summing up the marginal utilities TU = Sum of MU.

Question. How does availability of substitute good affect the elasticity of demand?
Answer. The demand of a good becomes elastic if its substitute good is available in the market.

Question. Define monotonic preference.
Answer. Consumer’s preferences are called monotonic when between any two bundles, one bundle has more of one good and no less of other good.

Question. Define Indifference curve Map.
Answer. A family of indifference curve indicating different levels of satisfaction called indifference map.

Question. Demand of good ‘X’ falls due to increase in the income of the consumer what type of good ‘X’ is?
Answer. Good ‘X’ is an inferior good.

Question. State condition of consumer’s equilibrium in respect of one good.
Answer. MUX = Px

Question. What will be the impact on demand of the good due to increase in price of the substitute good?
Answer. The demand of the good will increase.

Question. What is meant by utility?
Answer. Utility is the power of goods to satisfy human wants.

Question. A rise in price of a good results in a decrease in expenditure of it. Is its demand elastic or inelastic?
Answer. Elastic.

Question. Define consumers equilibrium.
Answer. Consumers equilibrium refers to a situations in which a consumer gets maximum satisfaction from his given income and market price.

Question. What is meant by market demand?
Answer. Market demand is the sum of total demand of all the consumers in the market at a particular time and at a given price.

Question. What is meant by Marginal Rate of Substitution (MRS).
Answer. MRS is the rate of sacrifice of one good to get an additional unit of other good.

Question. Define demand schedule.
Answer. Demand schedule is a tabular representation which represent different quantities of the commodity demanded at different prices.

Question. What is the impact of diminishing marginal rate of substitution on the slope of indifference curve?
Answer. Indifference curve become convex towards the origin.

Question. What cause an upward movement along a demand curve?
Answer. Increase in price while other factors are constant.

Question. Define normal good.
Answer. Normal goods are those goods, the demand for which increases as income of the buyer rise. There in positive relation between income and demand of these goods.

Question. If the number of consumers increase, in which direction will the demand curve shift?
Answer. Rightward.

Question. How is budget line defined?
Answer. Budget line is a line showing all different possible combinations of two goods which a consumer can buy with his given income and the price of both goods.

Question. A straight line demand curve is given. What will be elasticity of demand on the mid point of this curve.
Answer. Equal to unit.

Question. What is Law of Diminishing Marginal Utility?
Answer. Law of diminishing marginal utility states that as more and more units of a commodity are consumed marginal utility derived from every additional unit must decline.

Question. If the slope of a demand curve is parallel to X-axis, what will be the elasticity of demand?
Answer. Perfectly elastic.

Question. What will be the behaviour of total utility when marginal utility is zero?
Answer. Total utility will be maximum.

Question. Why is demand of water inelastic?
Answer. Because water is a necessity good.

Question. Why does higher indifference curve give more satisfaction?
Answer. Higher difference curve shows a higher level of satisfactions. It shows the various combinations of excess quantity of both goods than lower indifference curve.

Question. How is market demand schedule derived with the help of individual demand schedules?
Answer. By summations of individual schedules.

Question. Define price elasticity of demand.
Answer. The price elasticity of demand is the degree of responsiveness of quantity demanded of a commodity to the change in its price.

Question. What is meant by budget set.
Answer. The set of bundles available to the consumer with his given income at prevailing market price is called the budget set.

Short Answer Type Questions

Question. Distinguish between normal goods and inferior goods. Give example also.
Answer. Normal Goods : These are the goods the demand for which increases as income of the buyer rises. There is a positive relationship between income and demand or income effect is positive.
Example ; Rice, Wheat
Inferior Goods : These are the goods the demand for which decreases as income of buyer rises. Thus, there is negative relationship between income and demand or income effect is negative.
Example : coarse grain, coarse cloth.

Question. Distinguish between ‘increase in demand’ and ‘increase in quantity demanded’ of a commodity.
Answer. When demand increases at given price then it is called ‘increase in demand’. On the other hand, when demand increases by decrease in the price of a commodity then it is called increase in quantity demand.

Question. Define marginal utility. State the law of diminishing marginal utility.
Answer. Marginal Utility : It is addition more to the total utility as consumption is increased by one more unit of the commodity. Law of Diminishing Marginal
utility : It states that as consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing. According to this law TU increases at decreasing rate and MU decreases.

Question. Given price of a good, how does a consumer decide as to how much of that good to buy?
Answer. Consumer purchases up to the point where marginal utility is equal to the price (MU=P). So long as marginal utility is greater than price, he keeps on purchasing. As he makes purchases MU falls and at a particular quantity of the good MU becomes equal to price. Consumer purchases up to this point.

Question. Explain any four factors that affect price elasticity of demand.
Answer.
1. Nature of Commodity : Necessaries like Salt, Kerosene oil etc. have inelastic demand and luxuries have elastic demand.
2. Availability of substitutes : Demand for goods which have close substitutes is relatively more elastic and goods without close substitutes have less elastic
demand.
3. Different uses : Commodities that can be put to different use have elastic demand for instance electricity has different uses.
4. Habit of the consumer : Goods to which consumers become habitual will have inelastic demand.
Examples – Liquor and Cigarette.

Question. Explain relationship between total utility and marginal utility with the help of a schedule.
Answer.

1. As long as MU is positive, TU increases at diminishing rate.
2. When marginal utility is equal to zero then total utility is maximum.
3. When marginal utility is negative; Total utility starts diminishing.

Question. Explain how the demand for a good is affected by the price of its related goods.
Give examples.
Answer. Related goods are either substitutes or complementary Substitutes Goods : When price of a substitute falls, it becomes cheaper than the given good. So the consumer substitutes it for given good will decrease. Similarly, a rise in the price of substitute will result in increase in the demand for given good.
For example : – Tea and Coffee.
Complementary Goods : When the price of a complementary good falls its demand rises and the demand for the given good will increase. Similarly when price of complementary good increases, then demand for given good decreases. 
For example : – Car & Petrol.

Higher Order Thinking Skills

Question. If a good can be used for many purposes, the demand for it will be elastic. Why?
Answer. If a good can be used for many purposes , the demand for it will be more elastic because with a decrease in its price it is put to several uses and with a rise in its price it is withdrawn from its many existing uses. So that, there is a considerable change in demand in response to some change in price.

Question. Due to decrease in price of pen why does the demand of ink increase?
Answer. These are complementary goods.

Question. Give two examples of normal goods & inferior goods.
Answer. Normal goods – Rice, Wheat
Inferior goods – coarse grain, coarse cloth.

Question. Why does total utility increases at diminishing rate due to continuous increase in consumption?
Answer. As more and more units of commodity are consumed, marginal utility derived from each successive unit tends to diminish so total utility increases at diminishing rate up.

Question. What will be the behaviour of total utility when marginal utility curve lies below Xaxis?
Answer. Total utility start to decline.

Question. Determine how the following changes (or shifts) will affect market demand curve for a product.
a. A new steel plant comes up in Jharkhand people who were previously unemployed in the area are now employed. How will this affect the demand for colour T.V. and Black and White T.V. in the region?
b. In order to encourage tourism in Goa. The Government of India suggests Indian Airlines to reduce air fare to Goa from the four major cities of Chennai, Kolkata, Mumbai and New Delhi. If the Indian Airlines reduces the fare to Goa, How will this affect the market demand curve for air travel to Goa?
c. There are train and bus services between New Delhi and Jaipur. Suppose that the train fare between the two cities comes down. How will this affect demand curve for bus travel between the two cities?
Answer.
a. There will be rightward shift in market demand curve for colour and Black and White T.V. This is because of increase of income of the people due to employment in the new steel plant.
b. The demand for travel to Goa will expand in response to reduction in the air fare. However, this will be reflected by a movement along the demand curve There will be no shifts in the demand curve.
c. As train fare comes down the demand for bus travel will reduce. Demand curve for the bus travel will shift to the left showing less demand at the same price.

Question. When is demand inelastic?
Answer. When percentage change in quantity demanded is less than percentage change in price, the demand is said to be inelastic.