How to Use This Page
These are complete exercise solutions for Samacheer Kalvi 11th Economics Chapter 2 — Consumption Analysis. Solve each question yourself first, then verify your method and answer below. Focus on understanding the reasoning behind each answer, not just memorising results.
Key Concepts (Quick Recap)
| Concept | Meaning |
|---|---|
| Utility | Want-satisfying power of a commodity |
| Total Utility (TU) | Sum of marginal utilities of all units consumed: TU = MU1 + MU2 + ... + MUn |
| Marginal Utility (MU) | Additional utility from consuming one more unit: MUn = TUn – TUn–1 |
| Law of Diminishing MU | As consumption increases, MU from successive units falls |
| Consumer Equilibrium (1 commodity) | MU = Price (or MUx/Px = MUm, where MUm = marginal utility of money) |
| Consumer Equilibrium (2 commodities) | MUx/Px = MUy/Py (law of equi-marginal utility) |
| Indifference Curve (IC) | Shows all combinations of two goods giving equal satisfaction |
| Budget Line | Shows all affordable combinations: Px·X + Py·Y = M |
| MRSxy | Rate at which consumer gives up Y to gain one more unit of X; MRSxy = MUx/MUy |
| IC Equilibrium | MRSxy = Px/Py at tangency of IC and budget line |
Cardinal vs Ordinal Utility
| Feature | Cardinal Utility | Ordinal Utility |
|---|---|---|
| Measurement | Utility measured in utils (numerical) | Utility ranked (1st, 2nd, 3rd) |
| Approach | Marshallian / Neo-classical | Hicksian / Modern |
| Assumption | Utility is measurable and comparable | Only preference ranking is possible |
| Tool | Marginal utility analysis | Indifference curve analysis |
| Additivity | Utilities of different goods can be added | Cannot be added, only ranked |
| Realism | Less realistic | More realistic |
TU and MU Relationship
| Units Consumed | MU | TU | Observation |
|---|---|---|---|
| 0 | — | 0 | Starting point |
| 1 | 10 | 10 | MU is positive; TU increases |
| 2 | 8 | 18 | MU falls; TU still increases |
| 3 | 6 | 24 | MU falls further; TU rises at slower rate |
| 4 | 4 | 28 | MU positive but smaller; TU near peak |
| 5 | 2 | 30 | MU is minimum positive; TU is maximum |
| 6 | 0 | 30 | MU is zero; TU is maximum (saturation) |
| 7 | –2 | 28 | MU turns negative; TU starts declining |
Key insight: When MU falls but remains positive, TU rises. When MU = 0, TU is maximum. When MU becomes negative, TU falls.
I. Choose the Best Answer
Q1. Marginal utility of a commodity is zero when total utility is: (a) rising (b) falling (c) maximum ✓ (d) zero
Q2. The law of equi-marginal utility is also known as: (a) Law of substitution (b) Law of maximum satisfaction (c) Both (a) and (b) ✓ (d) Law of diminishing marginal utility
Q3. An indifference curve slopes: (a) upward from left to right (b) downward from left to right ✓ (c) parallel to X-axis (d) parallel to Y-axis
Q4. Indifference curves are convex to the origin because of: (a) increasing MRS (b) diminishing MRS ✓ (c) constant MRS (d) zero MRS
Q5. When MUx/Px > MUy/Py, the consumer should: (a) consume more of Y (b) consume more of X ✓ (c) consume less of both (d) stop consuming
Q6. The budget line shifts outward when: (a) price of one good rises (b) income of the consumer increases ✓ (c) price of both goods rise (d) taste changes
II. Fill in the Blanks
1. The want-satisfying capacity of a commodity is called utility. 2. The law of diminishing marginal utility was introduced by H.H. Gossen (also developed by Marshall). 3. When total utility is maximum, marginal utility is zero. 4. The law of equi-marginal utility explains how a consumer distributes income among different / multiple goods. 5. The slope of the budget line is equal to the price ratio (Px/Py). 6. An indifference curve is also called an iso-utility curve. 7. Marginal utility becomes negative when total utility starts declining. 8. MRSxy = MUx / MUy. 9. The consumer reaches equilibrium at the point where the budget line is tangent to an indifference curve. 10. The cardinal utility approach was developed by Alfred Marshall. 11. The ordinal utility approach was developed by J.R. Hicks. 12. Two indifference curves never intersect each other. 13. The income effect shows the change in quantity demanded due to a change in real income / purchasing power.
III. True or False
1. Total utility increases as long as marginal utility is positive. → True. As long as each additional unit adds positive utility, total utility keeps rising.
2. Indifference curves can intersect each other. → False. Correction: Two indifference curves cannot intersect because each IC represents a distinct level of satisfaction; intersection would violate the axiom of transitivity.
3. Marginal utility can never be negative. → False. Correction: Marginal utility becomes negative when consuming an additional unit reduces total satisfaction (e.g., eating beyond fullness causes discomfort).
4. The budget line shows all combinations of two goods that yield equal satisfaction. → False. Correction: The budget line shows all combinations of two goods that a consumer can afford given income and prices. It is the indifference curve that shows combinations yielding equal satisfaction.
5. Consumer equilibrium under the utility approach requires MU = Price for a single commodity. → True. For a single commodity, equilibrium is at the point where marginal utility equals the price paid: MUx = Px (or MUx/Px = MUm).
6. A higher indifference curve represents a lower level of satisfaction. → False. Correction: A higher indifference curve represents a higher level of satisfaction because the consumer can consume more of at least one good.
IV. Match the Following
| Column I | Column II | Match |
|---|---|---|
| 1. Cardinal utility | (d) Measurable in utils | 1 → d |
| 2. Ordinal utility | (f) Preference ranking only | 2 → f |
| 3. Indifference curve | (a) Convex to origin | 3 → a |
| 4. Budget line | (c) Shows affordable combinations | 4 → c |
| 5. MRSxy | (e) Slope of IC | 5 → e |
| 6. Law of equi-marginal utility | (b) MUx/Px = MUy/Py | 6 → b |
V. Answer Briefly
VI. Answer in Detail
Graph description: The MU curve is a downward-sloping curve from left to right. The TU curve initially rises upward (when MU is positive), reaches a peak (when MU = 0), and then declines (when MU is negative).
Exceptions / Limitations: (i) Addiction (drugs, alcohol) — MU may not diminish. (ii) Hobbies — collecting stamps may give increasing MU. (iii) Knowledge and education — more learning may yield increasing utility. (iv) Very small or very large units. (v) Changing tastes during consumption.
Income Effect, Substitution Effect, and Price Effect
| Effect | Definition | Direction |
|---|---|---|
| Income Effect | Change in quantity demanded due to a change in real income (purchasing power) caused by a price change | When price falls, real income rises, so demand increases (for normal goods) |
| Substitution Effect | Change in quantity demanded due to the relative price change, consumer substitutes the cheaper good for the dearer one | Always opposite to price change — when price of X falls, consumer buys more X |
| Price Effect | Total change in quantity demanded due to a price change | Price Effect = Income Effect + Substitution Effect |
Note: For Giffen goods, the income effect is so strong and negative that it outweighs the substitution effect, making the price effect positive (demand falls when price falls). For normal goods, both income and substitution effects work in the same direction when price falls.
Common Mistakes to Avoid
1. Confusing TU and MU — TU is cumulative (sum of all MU); MU is the addition from the last unit. Always ask: "Am I looking at total satisfaction or extra satisfaction?"
2. Saying MU is always positive — MU becomes zero at the saturation point and negative beyond it. Track the full schedule, not just the early units.
3. Writing MUx = MUy for two-commodity equilibrium — The correct condition is MUx/Px = MUy/Py. The per-rupee marginal utility must be equal, not the absolute MU values.
4. Confusing budget line with indifference curve — The budget line shows what the consumer can afford (constraint). The indifference curve shows what the consumer prefers (preference). Equilibrium is where they touch.
5. Forgetting the second-order condition — Equilibrium is not just MRSxy = Px/Py; the IC must also be convex to the origin at that point (diminishing MRS). A concave IC tangent to the budget line is an unstable equilibrium.
6. Mixing up cardinal and ordinal approaches — Cardinal utility uses measurable "utils" and marginal utility analysis (Marshall). Ordinal utility uses preference ranking and indifference curves (Hicks). Do not combine them.
7. Drawing intersecting ICs — Two ICs can never intersect. If they did, the point of intersection would represent two different levels of satisfaction simultaneously, which is logically impossible.
8. Ignoring the income and substitution effects — When price changes, always decompose into: Substitution Effect (consumer switches to the cheaper good) + Income Effect (real purchasing power changes). For normal goods, both effects work in the same direction.
Exam Checklist
- [ ] Definitions of utility, TU, MU memorised with formulas
- [ ] TU and MU schedule — can construct from raw data and identify saturation point
- [ ] Law of Diminishing Marginal Utility — statement, assumptions, limitations, and schedule ready
- [ ] Single-commodity equilibrium condition: MUx = Px (or MUx/Px = MUm)
- [ ] Two-commodity equilibrium condition: MUx/Px = MUy/Py (with numerical example)
- [ ] IC properties — downward slope, convexity, non-intersection, higher IC = higher utility
- [ ] Budget line equation: Px·X + Py·Y = M, slope = –Px/Py
- [ ] IC equilibrium condition: MRSxy = Px/Py with diminishing MRS
- [ ] Cardinal vs Ordinal comparison table memorised
- [ ] Income effect, substitution effect, and price effect — definitions and relationships
- [ ] Fill-in-the-blanks: key terms (Gossen, Hicks, Marshall, iso-utility, tangent)
- [ ] True/False: practice corrections for wrong statements
Internal Links
- [Chapter 2 Guide — Consumption Analysis](/school/tamil-nadu-state-board/class/11/economics/consumption-analysis)
- [All Class 11 Economics Solutions](/school/tamil-nadu-state-board/class/11/economics/solutions)
- [Class 11 Economics Subject Guide](/school/tamil-nadu-state-board/class/11/economics)