CUET UG Economics Booster Test 3 - Utility Analysis Fundamentals -

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CUET UG Economics Booster Test 3 - Utility Analysis Fundamentals

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Economics Booster Test 3 - Utility Analysis Fundamentals

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QUESTION 1 OF 20

Match the theories with their critical characteristics according to the text:

List I	List II
1. Cardinal Utility Analysis	a. Suffers from the drawback of quantifying utility in numbers
2. Ordinal Utility Analysis	b. Consumer ranks consumption bundles without assigning numbers
3. Cardinal Approach	c. Utility is measured quantitatively
4. Ordinal Approach	d. Utility is expressed through preference ranking

Answer Review

1 Match the theories with their critical characteristics according to the text:

List I	List II
1. Cardinal Utility Analysis	a. Suffers from the drawback of quantifying utility in numbers
2. Ordinal Utility Analysis	b. Consumer ranks consumption bundles without assigning numbers
3. Cardinal Approach	c. Utility is measured quantitatively
4. Ordinal Approach	d. Utility is expressed through preference ranking

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-d, 4-c

C 1-a, 2-c, 3-b, 4-d

D 1-d, 2-c, 3-a, 4-b

💡 Short Explanation

Cardinal utility measures satisfaction numerically. Ordinal utility ranks preferences without numbers. Ordinal analysis overcomes the limitation of quantifying utility.

✅ Correct Answer Explanation

Cardinal Utility Analysis assumes that utility can be measured in numerical units, which is considered its major drawback because satisfaction cannot be measured precisely. Ordinal Utility Analysis avoids this problem by simply ranking consumption bundles according to the consumer's preferences rather than assigning numerical values.

❓ Why Other Options Are Incorrect

Option B: Reverses Cardinal and Ordinal concepts.
Option C: Incorrectly matches quantitative and ranking approaches.
Option D: Mismatches all the characteristics.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Ordinal → Order Preferences

📚 Consumer's Equilibrium – Cardinal Utility Analysis & Ordinal Utility Analysis

2 In Cardinal Utility, the change in total utility due to consumption of one additional unit of a commodity is formally expressed by the formula:
MUn = ____________.

A TUn / TUn−1

B TUn + TUn−1

C TUn − TUn−1

D TUn × TUn−1

💡 Short Explanation

Marginal utility measures additional satisfaction. It equals the change in total utility. It is calculated by subtraction.

✅ Correct Answer Explanation

Marginal Utility (MU) is the additional utility obtained from consuming one more unit of a commodity. It is calculated as the difference between the total utility after consuming the nth unit and the total utility after consuming the previou MU_n = TU_n - TU{n-1}

❓ Why Other Options Are Incorrect

Option A: Division does not measure additional utility.
Option B: Addition does not represent change.
Option D: Multiplication has no relevance to MU.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

MU = New TU − Previous TU

📚 Consumer's Equilibrium – Marginal Utility Formula

3 If MU₆ = –2 and MU₅ = 0, what is the mathematical relationship between TU₅ and TU₆?

A TU₆ > TU₅

B TU₆ < TU₅

C TU₆ = TU₅

D TU₆ = TU₅ + 2

💡 Short Explanation

Negative MU reduces total utility. Zero MU indicates maximum total utility. Therefore, TU falls after the sixth unit.

✅ Correct Answer Explanation

When Marginal Utility becomes zero, Total Utility reaches its maximum. If the next unit gives negative Marginal Utility (−2), Total Utility decreases. Hence, the Total Utility after consuming the sixth unit is less than the Total Utility after the fifth unit.

❓ Why Other Options Are Incorrect

Option A: Negative MU cannot increase TU.
Option C: TU remains constant only when MU is zero.
Option D: TU decreases by 2 units instead of increasing.

🎯 Strategy

Used

Concept Equation

🧠 Memory Trick

MU < 0 → TU Falls

📚 Consumer's Equilibrium – Relationship between Total Utility and Marginal Utility

4 Arrange the states of Total Utility conceptually as aggregate consumption increases, assuming typical consumption behavior:
1. Total utility starts falling.
2. Total utility increases but at a diminishing rate.
3. Total utility remains constant.

A 1, 2, 3

B 2, 3, 1

C 3, 2, 1

D 2, 1, 3

💡 Short Explanation

TU first increases. It reaches a maximum and becomes constant. Then it starts declining.

✅ Correct Answer Explanation

Initially, each additional unit adds to Total Utility, though at a diminishing rate. When Marginal Utility becomes zero, Total Utility reaches its maximum and remains constant. Beyond this point, Marginal Utility becomes negative, causing Total Utility to decline.

❓ Why Other Options Are Incorrect

Option A: TU cannot fall before increasing.
Option C: TU cannot remain constant initially.
Option D: TU does not fall immediately after increasing.

🎯 Strategy

Used

Sequence

🧠 Memory Trick

Increase → Maximum → Decrease

📚 Consumer's Equilibrium – Total Utility and Law of Diminishing Marginal Utility

5 Which of the following analytical conditions correctly describe the dynamics of Marginal Utility?
I. MU becomes negative when TU begins to fall.
II. MU is zero when TU remains constant.
III. MU diminishes with an increase in consumption of the commodity.

A I and II only

B II and III only

C I and III only

D I, II, and III

💡 Short Explanation

Negative MU causes TU to fall. Zero MU keeps TU at its maximum. MU diminishes as consumption increases.

✅ Correct Answer Explanation

All three statements correctly describe the relationship between Total Utility and Marginal Utility. Marginal Utility declines with successive consumption due to the Law of Diminishing Marginal Utility. When MU becomes zero, Total Utility reaches its maximum. When MU becomes negative, Total Utility starts decreasing.

❓ Why Other Options Are Incorrect

Option A: Omits the diminishing nature of MU.
Option B: Ignores the effect of negative MU.
Option C: Omits the condition where MU equals zero.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

MU < 0 → TU Falls

📚 Consumer's Equilibrium – Law of Diminishing Marginal Utility & TU–MU Relationship

6 By definition, if a downward-sloping demand curve exists, its explanation rests on the notion that each successive unit of a commodity provides ____________ marginal utility.

A Negative

B Lower

C Constant

D Increasing

💡 Short Explanation

�� Marginal utility decreases with additional consumption. �� Consumers value successive units less. �� This forms the basis of the downward-sloping demand curve.

✅ Correct Answer Explanation

The Law of Diminishing Marginal Utility states that as a consumer consumes more units of a commodity, the additional satisfaction obtained from each successive unit decreases. → Since each additional unit provides lower marginal utility, consumers are willing to purchase more units only at lower prices. → This explains the negative slope of the demand curve. → Therefore, "Lower" marginal utility is the correct answer.

❓ Why Other Options Are Incorrect

�� Option A → Negative marginal utility occurs only after consumption exceeds the point of satisfaction; it does not explain the entire downward-sloping demand curve.
�� Option C → Constant marginal utility contradicts the Law of Diminishing Marginal Utility.
�� Option D → Increasing marginal utility is opposite to the law and would imply a rising willingness to pay.

🎯 Strategy

Used

Elimination

Application:

�� Eliminate options that contradict the Law of Diminishing Marginal Utility.

Final Logic:

�� Successive units provide lower marginal utility; therefore, the demand curve slopes downward.

🧠 Memory Trick

"More Units = Less Utility"

📚 Class XI – Statistics for Economics – Chapter: Introduction – Topic: Law of Diminishing Marginal Utility

7 The equation TUₙ = MU₁ + MU₂ + … + MUₙ mathematically means that:

A Marginal utility is the average of total utility.

B Total utility derived from n units is the sum total of marginal utility of each successive unit till the nth unit.

C Marginal utility never drops below zero.

D Total utility and marginal utility are inversely proportional.

💡 Short Explanation

�� Total utility is cumulative satisfaction. �� Marginal utilities are added together. �� The formula expresses the TU–MU relationship.

✅ Correct Answer Explanation

Total Utility (TU) represents the total satisfaction obtained from consuming a given number of units of a commodity. → Each additional unit contributes Marginal Utility (MU). → Therefore, Total Utility is obtained by adding the marginal utility of every successive unit consumed. → Mathematically, TUₙ = MU₁ + MU₂ + MU₃ + … + MUₙ → Hence, Option B correctly explains the equation.

❓ Why Other Options Are Incorrect

�� Option A → Marginal utility is not the average of total utility.
�� Option C → Marginal utility can become zero or even negative after the point of maximum satisfaction.
�� Option D → Total utility and marginal utility are related but are not always inversely proportional.

🎯 Strategy

Used

Conceptual Formula Analysis

Application:

�� Interpret the mathematical relationship between Total Utility and Marginal Utility using the given equation.

Final Logic:

�� Total Utility equals the sum of the marginal utilities of all units consumed.

🧠 Memory Trick

"TU = Add All MU"

📚 Class XI – Statistics for Economics – Chapter: Introduction – Topic: Relationship between Total Utility and Marginal Utility

8 Assertion (A): Adding the MU of the 5th unit (0) to the TU of the 4th unit (24) yields a TU of 24 for the 5th unit.
Reason (R): Successive unit addition implies that when MU becomes zero, total utility remains constant.

A Both A and R are true and R is the correct explanation of A

B Both A and R are true, but R is not the correct explanation of A

C A is true, R is false

D A is false, R is true

💡 Short Explanation

�� Total Utility is the sum of Marginal Utilities. �� When MU becomes zero, TU reaches its maximum. �� Adding zero does not change Total Utility.

✅ Correct Answer Explanation

Total Utility (TU) is calculated by adding the Marginal Utility (MU) of each successive unit. → Here, TU of the 4th unit is 24 and MU of the 5th unit is 0. → Therefore, TU₅ = TU₄ + MU₅ = 24 + 0 = 24 → Since MU is zero, consumption of the 5th unit neither increases nor decreases Total Utility. Thus, Total Utility remains constant at its maximum level. → Hence, both the Assertion and the Reason are true, and the Reason correctly explains the Assertion.

❓ Why Other Options Are Incorrect

�� Option B → Incorrect because the Reason directly explains why TU remains 24 after adding zero MU.
�� Option C → Incorrect because both the Assertion and the Reason are true.
�� Option D → Incorrect because the Assertion is true.

🎯 Strategy

Used

Elimination

Application:

�� Verify the TU–MU relationship and determine whether the Reason correctly explains the Assertion.

Final Logic:

�� Since TU = Previous TU + MU and MU = 0, Total Utility remains unchanged.

🧠 Memory Trick

"MU = 0 ⇒ TU Maximum"

📚 Class XI – Statistics for Economics – Chapter: Introduction – Topic: Relationship between Total Utility and Marginal Utility

9 Match the consumption behavior with its demand curve effect.

List-I	List-II
1. Diminishing marginal utility from successive units	a. Explains why demand curves have a negative slope
2. The individual pays less for the 6th unit than the 5th	b. Occurs because the 6th unit is worth less to the consumer than the 5th unit
3. Marginal utility becomes zero	c. Total utility reaches its maximum
4. Marginal utility becomes negative	d. Total utility begins to decline

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-c, 4-d

C 1-a, 2-c, 3-b, 4-d

D 1-b, 2-d, 3-a, 4-c

💡 Short Explanation

�� Marginal utility diminishes with additional consumption. �� Lower utility reduces willingness to pay. �� Zero MU gives maximum TU.

✅ Correct Answer Explanation

According to the Law of Diminishing Marginal Utility, each additional unit consumed provides less satisfaction than the previous one. → Therefore, consumers are willing to pay less for successive units, giving the demand curve its downward slope. → When Marginal Utility becomes zero, Total Utility reaches its maximum. → If Marginal Utility becomes negative, Total Utility starts declining. → Thus, the correct matching is: 1 → a 2 → b 3 → c 4 → d

❓ Why Other Options Are Incorrect

�� Option B → Incorrect because diminishing marginal utility explains the downward-sloping demand curve, not the willingness to pay less directly.
�� Option C → Incorrect because Marginal Utility becoming zero corresponds to maximum Total Utility, not reduced willingness to pay.
�� Option D → Incorrect because multiple matches are conceptually incorrect.

🎯 Strategy

Used

Option Grouping

Application:

�� Match each concept using the logical relationship between marginal utility, total utility, and consumer demand.

Final Logic:

�� Diminishing MU → Lower willingness to pay → MU = 0 gives maximum TU → Negative MU reduces TU.

🧠 Memory Trick

"Less MU → Less Price → Zero MU = Max TU"

📚 Class XI – Statistics for Economics – Chapter: Introduction – Topic: Law of Diminishing Marginal Utility and Relationship between Total Utility and Marginal Utility

10 Chronologically arrange the conceptual flow explaining why the law of demand operates:
1. The consumer's desire to have still more of the commodity becomes weaker.
2. The consumer is willing to buy additional units only when the price drops.
3. The consumer obtains successive units of a commodity.
4. The marginal utility provided by each successive unit diminishes.

A 3, 1, 4, 2

B 1, 3, 2, 4

C 3, 4, 1, 2

D 4, 1, 2, 3

💡 Short Explanation

�� Consumption increases with successive units. �� Marginal utility diminishes with each additional unit. �� Consumers buy more only when prices fall.

✅ Correct Answer Explanation

The process begins when the consumer consumes successive units of a commodity (3). → According to the Law of Diminishing Marginal Utility, each successive unit provides less additional satisfaction than the previous one (4). → As a result, the consumer's desire for additional units becomes weaker (1). → Therefore, the consumer is willing to purchase more units only if the price falls (2), which explains the downward-sloping demand curve. → Hence, the correct sequence is: 3 → 4 → 1 → 2

❓ Why Other Options Are Incorrect

�� Option A → Incorrect because diminishing marginal utility (Statement 4) causes the weakening of desire (Statement 1), not the other way around.
�� Option B → Incorrect because the consumer must first consume successive units before the desire weakens.
�� Option D → Incorrect because diminishing marginal utility cannot occur before the consumer consumes successive units.

🎯 Strategy

Used

Sequence

Application:

�� Arrange the statements according to the logical cause-and-effect relationship underlying the Law of Diminishing Marginal Utility.

Final Logic:

�� Consume more → Marginal utility diminishes → Desire weakens → Price must fall for additional purchases.

🧠 Memory Trick

"Consume → Less Utility → Less Desire → Lower Price"

📚 Class XI – Statistics for Economics – Chapter: Introduction – Topic: Law of Diminishing Marginal Utility

11 Because utility varies by individual preference, a rational consumer chooses her optimal consumption bundle from the budget set based on her ____________.

A Monetary constraints alone

B Tastes and preferences over the bundles

C Absolute utility numbering

D Unrelated supply conditions

💡 Short Explanation

Utility differs from person to person. Consumers choose according to their tastes and preferences. The optimal bundle depends on both preferences and the budget.

✅ Correct Answer Explanation

Utility is subjective, meaning different consumers derive different levels of satisfaction from the same commodity. Therefore, a rational consumer selects the consumption bundle that best matches her tastes and preferences, while remaining within her budget constraints.

❓ Why Other Options Are Incorrect

Option A: Budget is important but preferences determine the chosen bundle.
Option C: Ordinal utility does not require numerical measurement.
Option D: Supply conditions do not directly determine individual preferences.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

Preferences decide "Will Buy"

📚 Consumer's Equilibrium – Subjective Nature of Utility & Consumer Preferences

12 The text demonstrates that utility is subjective and changes with time and place. Which analytical conclusions align with this?
I. Utility is an objective property intrinsic to the physical commodity.
II. A room heater gives different levels of utility in Ladakh vs. Chennai.
III. A room heater gives different levels of utility in summer vs. winter.

A I and II only

B II and III only

C I and III only

D I, II, and III

💡 Short Explanation

Utility varies with place. Utility also varies with time. Utility is subjective, not an inherent property of goods.

✅ Correct Answer Explanation

Utility depends on the circumstances of the consumer. A room heater provides greater satisfaction in Ladakh than Chennai because of climatic differences, and greater utility in winter than summer due to seasonal changes. Hence, statements II and III are correct, while statement I is incorrect because utility is subjective.

❓ Why Other Options Are Incorrect

Option A: Statement I is incorrect because utility is subjective.
Option C: Omits the place factor.
Option D: Statement I is false.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

Person – Time – Place

📚 Consumer's Equilibrium – Subjective Nature of Utility

13 Assertion (A): Under monotonic preferences, if bundle A has more of at least one good and no less of the other compared to bundle B, the consumer strictly prefers A over B.

A True

B False

C Only if both goods are inferior

D Only if both goods are perfect substitutes

💡 Short Explanation

Monotonic preferences mean "more is better." More of one good and no less of the other is preferred. This is a basic assumption of ordinal utility theory.

✅ Correct Answer Explanation

Under Monotonic Preferences, consumers always prefer a bundle containing more of at least one good and no less of the other. Therefore, if Bundle A satisfies this condition relative to Bundle B, the consumer will strictly prefer Bundle A.

❓ Why Other Options Are Incorrect

Option B: Contradicts monotonic preference.
Option C: The rule is independent of inferior goods.
Option D: Perfect substitutes are not required.

🎯 Strategy

Used

Assertion / True-False

🧠 Memory Trick

More Goods → More Satisfaction

📚 Consumer's Equilibrium – Ordinal Utility Theory & Monotonic Preferences

14 Match the bundle comparisons to their qualitative satisfaction ranking (assume combinations have the same quantity of mangoes):

List I	List II
1. Combination C (3 bananas, 10 mangoes) vs. Combination B (2 bananas, 10 mangoes)	a. C provides a higher level of satisfaction than B
2. Combination B (2 bananas, 10 mangoes) vs. Combination A (1 banana, 10 mangoes)	b. B provides a higher level of satisfaction than A
3. Same mangoes but more bananas	c. Higher-ranked bundle under monotonic preferences
4. More of one good with no reduction in the other	d. Strictly preferred bundle

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-d, 4-c

C 1-a, 2-c, 3-b, 4-d

D 1-d, 2-c, 3-a, 4-b

💡 Short Explanation

More bananas with the same mangoes increase satisfaction. Monotonic preferences imply "more is better." The bundle with more goods is preferred.

✅ Correct Answer Explanation

Since the quantity of mangoes remains constant, the bundle containing more bananas provides a higher level of satisfaction. Therefore, Combination C is preferred to B, and Combination B is preferred to A. This follows the assumption of monotonic preferences.

❓ Why Other Options Are Incorrect

Option B: Reverses the correct preference order.
Option C: Incorrectly matches the monotonic preference concept.
Option D: Mismatches all preference relationships.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Same Mangoes + More Bananas = Better Bundle

📚 Consumer's Equilibrium – Ordinal Utility Theory & Monotonic Preferences

15 Match the theoretical rules with their outcomes on Equal Utility Points:

List I	List II
1. Two indifference curves intersecting	a. Leads to conflicting or absurd conclusions
2. A higher indifference curve	b. Represents a higher level of satisfaction
3. Non-intersecting indifference curves	c. Maintain consistency of consumer preferences
4. Points on the same indifference curve	d. Provide equal satisfaction to the consumer

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-a, 3-d, 4-c

C 1-a, 2-c, 3-b, 4-d

D 1-d, 2-c, 3-a, 4-b

💡 Short Explanation

Indifference curves never intersect. A higher indifference curve represents greater satisfaction. Points on the same curve give equal utility.

✅ Correct Answer Explanation

If two indifference curves intersect, they imply contradictory preference rankings, violating the assumptions of ordinal utility theory. A higher indifference curve represents a higher level of satisfaction, while every point on the same indifference curve provides equal satisfaction to the consumer.

❓ Why Other Options Are Incorrect

Option B: Reverses the meanings of intersecting and higher curves.
Option C: Incorrectly matches consistency and satisfaction.
Option D: Mismatches all theoretical concepts.

🎯 Strategy

Used

Match the Following

🧠 Memory Trick

Intersecting Curves → Impossible

📚 Consumer's Equilibrium – Indifference Curve Properties & Equal Utility Points

16 If two indifference curves, IC₁ and IC₂, intersect at point A, and point B lies on IC₁ while point C lies on IC₂, the false logical deduction that leads to an absurd result is that the utility of B is ____________ the utility of C.

A Less than

B Greater than

C The same as

D Unrelated to

💡 Short Explanation

Indifference curves cannot intersect. Intersection implies equal utility for different curves. This leads to a logical contradiction.

✅ Correct Answer Explanation

If two indifference curves intersect, the intersection point would imply that both curves represent the same level of satisfaction. Consequently, points B and C on different indifference curves would also be inferred to provide the same utility, which is impossible because different indifference curves represent different satisfaction levels. Hence, intersecting indifference curves lead to an absurd conclusion.

❓ Why Other Options Are Incorrect

Option A: The contradiction is not based on B having lower utility.
Option B: The contradiction is not based on B having higher utility.
Option D: Utility levels become incorrectly equal, not unrelated.

🎯 Strategy

Used

Statement Completion

🧠 Memory Trick

IC Never Intersect → Different Curves = Different Satisfaction

📚 Consumer's Equilibrium – Properties of Indifference Curves (Indifference Curves Do Not Intersect)

17 Which statements are analytically correct regarding the absolute value of the Marginal Rate of Substitution (MRS) at the optimum bundle?
I. It is exactly equal to the ratio of the prices (slope of the budget line).
II. It measures the rate at which the consumer is willing to substitute one good for another.
III. It is the rate at which the consumer is able to substitute one good for the other in the market.

A I and II only

B II and III only

C I and III only

D I, II, and III

💡 Short Explanation

MRS measures willingness to substitute goods. At equilibrium, MRS equals the price ratio. The market determines the substitution opportunity.

✅ Correct Answer Explanation

Marginal Rate of Substitution (MRS) measures the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction. At the optimal consumption bundle, the absolute value of MRS equals the ratio of the prices of the two goods (the slope of the budget line). This also reflects the rate at which substitution is possible in the market.

❓ Why Other Options Are Incorrect

Option A: Omits the market substitution aspect.
Option B: Omits the equilibrium condition (MRS = Price Ratio).
Option C: Omits the definition of MRS as willingness to substitute.

🎯 Strategy

Used

Multi-correct

🧠 Memory Trick

Optimal Choice → MRS = Price Ratio

📚 Consumer's Equilibrium – Marginal Rate of Substitution & Consumer Equilibrium

18 Arrange the logical sequence proving why the optimal bundle cannot occur where MRS is greater than the price ratio:
1. The consumer is willing to give up 2 mangoes for 1 banana (MRS = 2).
2. In the market, she only needs to give up 1 mango to buy 1 banana (Price Ratio = 1).
3. By buying an extra banana, she can have more of both goods and move to a preferred bundle.

A 1, 2, 3

B 2, 1, 3

C 3, 2, 1

D 1, 3, 2

💡 Short Explanation

Compare willingness with market exchange. MRS exceeds the market price ratio. The consumer can improve satisfaction, so equilibrium is not reached.

✅ Correct Answer Explanation

When the consumer is willing to sacrifice more mangoes than the market requires for an additional banana, purchasing another banana increases satisfaction without reducing utility. Therefore, the initial bundle cannot be the equilibrium bundle. Consumer equilibrium is achieved only when MRS equals the price ratio.

❓ Why Other Options Are Incorrect

Option B: Market comparison follows consumer willingness.
Option C: Improvement cannot occur before the comparison.
Option D: The conclusion comes only after both conditions are established.

🎯 Strategy

Used

Sequence

🧠 Memory Trick

MRS = Price Ratio → Equilibrium

📚 Consumer's Equilibrium – Consumer Equilibrium using Indifference Curves

📄 Passage

Here, the consumer is indifferent among all combinations as long as the total value of five-rupee coins and five-rupee notes remains the same. It hardly matters whether the consumer receives a five-rupee coin or a five-rupee note. Therefore, irrespective of how many five-rupee notes the consumer has, she is willing to sacrifice only one five-rupee coin for one five-rupee note. Thus, these two commodities are perfect substitutes, and the indifference curve representing them is a straight line.

Based on the passage, if the goods are not perfect substitutes, the amount of coins a consumer is willing to sacrifice for an additional note would continually:

A Remain 1:1

B Increase

C Decrease

D Fluctuate randomly

💡 Short Explanation

Imperfect substitutes exhibit diminishing MRS. Consumers sacrifice smaller amounts over time. The willingness to substitute decreases.

✅ Correct Answer Explanation

For ordinary goods that are not perfect substitutes, the Marginal Rate of Substitution diminishes as the consumer acquires more of one good. Consequently, the consumer is willing to sacrifice smaller and smaller quantities of the other good for each additional unit.

❓ Why Other Options Are Incorrect

Option A: A constant 1:1 trade-off applies only to perfect substitutes.
Option B: Diminishing MRS means the sacrifice falls, not rises.
Option D: The trade-off follows a systematic pattern.

🎯 Strategy

Used

Passage-Based MCQ

🧠 Memory Trick

Ordinary Goods → Diminishing MRS

📚 Consumer's Equilibrium – Diminishing Marginal Rate of Substitution

📄 Passage

According to the passage, if two goods are perfect substitutes like five-rupee coins and five-rupee notes, what is the geometric shape of their indifference curve?

A A curve strictly concave to the origin

B A downward-sloping straight line

C An L-shaped curve

D An upward-sloping straight line

💡 Short Explanation

Perfect substitutes have a constant MRS. Consumers exchange them in a fixed ratio. Their indifference curve is a straight line.

✅ Correct Answer Explanation

Since five-rupee coins and five-rupee notes provide exactly the same satisfaction, the consumer is always willing to exchange one for the other at a constant one-to-one rate. This constant Marginal Rate of Substitution results in a downward-sloping straight-line indifference curve.

❓ Why Other Options Are Incorrect

Option A: Concave curves are not indifference curves for perfect substitutes.
Option C: L-shaped curves represent perfect complements.
Option D: Indifference curves always slope downward.

🎯 Strategy

Used

Passage-Based MCQ

🧠 Memory Trick

Perfect Complements → L-Shape

📚 Consumer's Equilibrium – Indifference Curves for Perfect Substitutes

CUET UG Economics Booster Test 3 - Utility Analysis Fundamentals

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