Theories of Consumer Behaviour (VSAQs)
Economics-1 | 2. Theories of Consumer Behaviour – VSAQs:
Welcome to VSAQs in Chapter 2: Theories of Consumer Behaviour. This page includes the most important FAQs from previous exams. Each answer is provided in simple English and presented in the exam format. This approach helps you prepare effectively and aim for top marks in your final exams.
VSAQ-1: Define Utility.
Utility is like the satisfaction or happiness you get from something you enjoy. Imagine eating your favorite ice cream on a hot day—the pleasure you feel from that experience is what economists call utility. It’s a way to measure how much a good or service meets your needs or desires. Utility is subjective, meaning it varies from person to person; what brings joy to one person might not be as satisfying to another. In economics, utility helps us understand why people make certain choices and how they prioritize different goods and services.
VSAQ-2: Explain Cardinal Utility.
Cardinal Utility is like giving a score to your happiness. Imagine you rate your enjoyment of ice cream on a scale from 1 to 10, where 10 is absolute bliss. Cardinal utility tries to measure satisfaction in numerical terms, assigning values (like “utils”) to how much joy or benefit you get from different goods. For example, if one scoop of ice cream gives you 5 utils of happiness, two scoops might give you 8 utils. Although this concept helps compare satisfaction levels, it’s more theoretical and not often used in real-life scenarios. Instead, economists usually rely on ordinal utility, which is simpler and more practical.
VSAQ-3: Explain Ordinal Utility.
Ordinal Utility is like making a list of your favorite activities in order of preference without worrying about exact numbers. Imagine you rank your enjoyment of different desserts—ice cream first, cake second, and cookies third. Ordinal utility focuses on the relative ranking of preferences rather than assigning specific numbers to them. It’s about knowing that you prefer ice cream over cake, but not by how much. This approach is more commonly used in economics because it’s easier to understand and apply to real-life decision-making.
VSAQ-4: What is a Price Line/Budget Line?
A Price Line or Budget Line is like drawing a line on a graph to see all the different combinations of two items you can buy with your money. Imagine you have a certain amount of money to spend, and you’re deciding between buying apples and oranges. The budget line shows you the trade-offs—you can either buy more apples and fewer oranges or vice versa, depending on their prices and your budget. This line helps you understand your purchasing power and make choices about how to allocate your money between different goods.
VSAQ-5: Explain the Law of Diminishing Marginal Utility.
The Law of Diminishing Marginal Utility is like the feeling you get when you’ve had enough of something you usually enjoy. Imagine eating slices of pizza—each slice might be delicious at first, but as you keep eating, the satisfaction you get from each additional slice starts to decrease. This law states that the more you consume of a product, the less additional satisfaction you’ll get from each extra unit. It helps explain why people usually don’t keep buying the same thing endlessly and why variety is important in consumption.
VSAQ-6: Explain Marginal Rate of Substitution.
The Marginal Rate of Substitution (MRS) is like deciding how much of one thing you’re willing to give up to get more of something else while staying just as happy. Imagine you love both apples and bananas. The MRS tells us how many bananas you would be willing to trade for one more apple without changing your overall satisfaction. If you’re willing to give up 2 bananas for 1 more apple, your MRS is 2:1. This concept shows how consumers make trade-offs between different goods to maintain the same level of happiness.
VSAQ-7: Draw the Indifference Map.
An Indifference Map is like a series of contour lines on a map, each representing a different level of satisfaction. Imagine you’re drawing curves on a graph, where each curve shows different combinations of two goods (like apples and oranges) that make you equally happy. Higher curves on the map represent combinations that give you more satisfaction. These curves help us understand consumer preferences by showing which combinations of goods are preferred and how much more of one good you would need to compensate for having less of another.
VSAQ-8: Write About the Properties of Indifference Curves.
Indifference Curves have some interesting properties, just like the rules of a game:
Higher Curves Mean More Satisfaction: A curve that’s higher on the graph represents a greater level of satisfaction than one that’s lower, meaning you’re happier with the combinations on the higher curve.
Negative Slope: The curve slopes downward, meaning if you want more of one good, you have to give up some of the other to stay just as happy.
Convex Shape: The curve is bowed inward, showing that as you have more of one good, you’re willing to give up less of the other for an additional unit.
Non-Intersecting: No two curves can cross each other because each curve represents a different level of satisfaction.