Theory of Consumer BehaviourClass 12 Introductory Microeconomics Case Study Questions

Rohan is a student who loves eating samosas from his college canteen. He decides to analyze the satisfaction he gets from them. He measures the utility in imaginary units called 'utils'. The first samosa gives him 20 utils of satisfaction. The second one adds 16 utils to his total satisfaction. The third gives him 10 utils. The fourth samosa adds 6 utils. After eating the fifth samosa, his total satisfaction remains the same as it was after the fourth. If he were to eat a sixth samosa, he feels he might actually feel unwell, and his total satisfaction would decrease.

Based on this information, we can construct a table of his consumption and utility:

Ananya receives a monthly pocket money of ₹500 to spend on two goods: coffee and notebooks. The price of a cup of coffee (Good 1) is ₹50, and the price of a notebook (Good 2) is ₹100. She can buy any combination of these two goods as long as her total expenditure does not exceed her income. The bundles available to her form her budget set. If she spends her entire income, the combinations lie on her budget line.

Now, consider two scenarios. In Scenario A, her pocket money increases to ₹600, while the prices remain the same. In Scenario B, starting from the original situation (income ₹500, coffee ₹50, notebook ₹100), the price of coffee falls to ₹25.

Kavita is a rational consumer who allocates her monthly entertainment budget between two goods: watching movies (Good X) and buying books (Good Y). She wants to maximize her satisfaction. The point where her satisfaction is maximized, given her budget, is called the consumer's optimum. This occurs at a point where her budget line is tangent to the highest possible indifference curve. At this point, the rate at which she is willing to substitute movies for books (Marginal Rate of Substitution, MRS) is exactly equal to the rate at which the market allows her to substitute them (the price ratio, Px/Py).

Suppose at her current consumption bundle, Kavita's MRS of movies for books is 3. This means she is willing to give up 3 books to watch one more movie. The price of a movie ticket is ₹150, and the price of a book is ₹100.