# Case Study Chapter 2 Theory of Consumer Behaviour

Please refer to Case Study Chapter 2 Theory of Consumer Behaviour with answers provided below. These case study based questions are expected to come in the upcoming Class 12 Economics examinations. We have provided economics case studies with answers class 12 for all chapters on our website as per the latest examination pattern issued by CBSE, NCERT, and KVS.

## Chapter 2 Theory of Consumer Behaviour Economics Case study with Answers Class 12

Case Based Question:

Read the following case study and answer question

Ravi has fallen on hard times due to lockdown. His income per week is Rs 400, spending Rs 200 on food and ` 200 on all other goods. However, he is also receiving a social allowance in the form of Rs 10 food stamps per week from  government . The coupons can be exchanged for Rs 10 worth of food, and he only has to pay Rs5 for such coupons.

Question. What will be the equation of budget line food and non-food items (without food coupons)?
(a) Price (food) + Price (non-food) = 200
(b) Price (food) + Price (non-food) = 400
(c) Price (food) + Price (non-food) < 400
(d) Price (food) + Price (non-food) > 400

B

Question. What will be the equation of budget line food and non-food items (with food coupons)?
(a) Price (food) + Price (non-food) = 210
(b) Price (food) + Price (non-food) = 410
(c) Price (food) + Price (non-food) < 410
(d) Price (food) + Price (non-food) = 405

B

Question. Preferences are considered as monotonic when ………… .
(a) equal units of goods are more preferred
(b) less units of goods are more preferred
(c) more units of the goods are more preferred
(d) All of the above

C

Question. If Ravi is to be at equilibrium point, what should be the condition?
(a) MRS = 2
(b) MRS= 4
(c) MUx / MUy = 2
(d) Can’t be determined

D

Question. Assertion (A) Ravi will be in a better situation after subsidies as compared to before subsidy situation.
Reason (R) Food subsidy or coupons has no impact on the equilibrium as the pandemic is a rare situation. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

B

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In economic terms, a consumer is an economic agent, who consumes a good or service for satisfaction of his/her wants. Keeping in mind the said definition, every individual consumer is a rational consumer and understands his/her best interest. However, on certain occassions, we can observe that people buys goods or services without their choice or needs, i.e. influenced by certain external factors/components. In such situations, utility is derived by mere purchase of goods and not from its consumption. Also, under such cases determining optimum level of consumption becomes difficult. One such example can be drawn from festive buying in India.

Question. Rationality of a consumer depends upon which of the following factors?
(a) Consumer’s taste and preferences
(b) Utility from consumption of a good
(c) Based upon the habit of a consumer
(d) All of the above

B

Question. Which of the following statements is/are true for utility?
(a) Utility is thewant satisfying power of a commodity
(b) Utility depends upon want and choice
(c) Same good may give different utility in different situations
(d) All of the above

D

Question. In the above case, utility should be considered as ………… in nature.
(a) qualitative
(b) quantitative
(c) Both (a) and (b)
(d) Neither (a) nor (b)

C

Question. When a consumer buys goods without their need, consumer’s equilibrium becomes ………….. .
(a) static/constant
(b) dynamic
(c) unambiguous
(d) stable

C

QuestionAssertion (A) A consumer is an economic agent who maximises profits.
Reason (R) At equilibrium point, utility from units of goods consumed can be negative as well. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Both are false

D

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We buy many goods and services to satisfy our wants. Using up of goods and services to satisfy wants is called consumption and the economic agent who buys goods and services is called a consumer. When a consumer buys any good or service, his/her main objective is to get maximum satisfaction from the quantity of the commodities purchased by spending his/her income at the given market price. The way a consumer maximises his/her satisfaction from spending his/her income on various goods and services is the subject matter of consumer’s behaviour.

Question. Consumer’s behaviour is the study of which of the following?
(a) Consumer’s equilibrium
(b) Demand
(c) Both (a) and (b)
(d) Neither (a) nor (b)

C

Question. All goods that consumer consumes satisfy human wants. Choose from the options below.
(a) True
(b) False
(c) Partially true
(d) Incomplete statement

B

Question. Assertion (A) When a consumer buys a good without the need, his equilibriumbecomes unstable.
Reason (R) Price of the good and income of the consumer are the most important components of equilibrium. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

B

Question. As the income levels increases, the equilibrium condition ……… .
(a) remains unchanged
(b) changes
(c) unstable
(d) None of these

B

Question. Which approach of utility gives more stable equilibrium condition?
(a) Cardinal
(b) Ordinal
(c) Both (a) and (b)
(d) Neither (a) nor (b)

C

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When consumers make choices about the quantity of goods and services to consume, it is presumed that their is to maximise total utility. In maximising total utility, the consumer faces a number of constraints, the most important of which are the consumer’s income and the prices of the goods and services that the consumer wishes to consume. The consumer’s effort to maximise total utility, subject to these constraints, is referred to as the consumer ’s problem. The solution to the consumer’s problem, which entails decisions about how much the consumer will consume of a number of goods and services, is referred to as consumer equilibrium. Consider the simple case of a consumer who cares about consuming only two goods: good 1 and good 2. This consumer knows the prices of goods 1 and 2 and has a fixed income or budget that can be used to purchase quantities of goods 1 and 2. The consumer will purchase quantities of goods 1 and 2 so as to completely exhaust the budget for such purchases. The actual quantities purchased of each good are determined by the condition for consumer equilibrium, which is

Marginal utility of good 1/Price of good 1

= Marginal utility of good 2/Price of good 2

= …. =Marginal utility of good N/Price of good N

Question. The above equation of equilibrium given in the case study is based upon…… .
(a) first psychological law of consumption
(b) second psychological law of consumption
(c) Both (a) and (b)
(d) Neither (a) nor (b)

B

Question. The given law in case study is studied under which of the following approaches?
(a) Cardinal utility
(b) Ordinal utility
(c) Both (a) and (b)
(d) Neither (a) nor (b)

A

Question. Assertion (A) When consumers make choices about the quantity of goods and services to consume, it is presumed that their objective is to maximise total utility. Reason (R) In maximising total utility, the consumer faces a number of constraints, the most important of which are the consumer’s income and the prices of the goods and services that the consumer wishes to consume. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

B

Question. The consumer’s effort to maximise total utility, subject to these constraints, is referred to as ……… .
(a) utility analysis
(b) consumer’s problem
(c) Both (a) and (b)
(d) None of these

B

Question. Consumer should consume combination of both goods in a such way that it
(a) exhaust his entire income
(b) save a part of his income
(c) Either (a) or (b)
(d) None of these

A

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Salt has no close substitute and moreover, a household has to share a negligible part of his entire budget. Therefore, even in spite of increase in price of salt, its demand will not be affected. However, demand for a particular brand of toothpaste is comparatively more elastic as there are many brands of toothpaste available in the market, so the consumers can switch over to any other brand in case of hike in the price of a particular brand of toothpaste.

Question. The elasticity of demand of salt is …… .
(a) elastic
(b) inelastic
(c) perfectly elastic
(d) perfectly inelastic

B

Question. ……… makes demand for salt inelastic.
(a) Necessity
(b) Non-availability of substitute
(c) Both (a) and (b)
(d) None of the above

C

Question. Why demand for toothpaste is elastic in nature?
(a) It is not a necessity of life
(b) It has a competitive market
(c) Consumer has a preference for it
(d) All of the above

B

Question. Which of the following is not a determinant of elasticity of demand?
(a) Availability of substitutes
(b) Nature of the good
(c) Number of buyers in the market
(d) Expenditure on a commodity

C

Question. Assertion (A) Any good which has inelastic demand must be necessity of life.
Reason (R) Elastic goods are highly rice sensitive in nature as compared to inelastic goods. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

D

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Year 2020 has witnessed many ups and downs, there were natural calamities around the globe, political tensions and what not. The outbeeak of coronavirus pandemic had  led to worldwide lockdown for several months. The world almost stopped during April, 2020. India is also not untouched with the impact of pandemic. Many people lost their jobs during this time, specially migrant workers. Government announced relief packages but still it didn’t boost enough demand.

Question. What will be the impact on the consumption demand of necessity goods during the pandemic?
(a) Demand curve shifts to the right
(b) Demand curve shifts to the left
(c) No change in demand curve
(d) Downwardmovement along the demand curve

C

Question. People loose their jobs during the nationwide lockdown, how will this impact the demand curve for inferior goods?
(a) Rightward shift in demand curve
(b) Leftward shift in demand curve
(c) Downward movement along demand curve
(d) Upward movement along demand curve

A

Question. How should the demand be affected due to the relief package announced by the government?
(a) Increase in demand
(b) Expansion in quantity demanded
(c) Decrease in demand
(d) Contraction in quantity demanded

A

Question. Demand for automobile industry decreased inspite of decreasing price during pandemic. This is referred to as ……… .
(a) Contraction in demand
(b) Exception of demand
(c) Both (a) and (b)
(d) None of the above

B

Question. Assertion (A) Demand for medical equipments was high during the pandemic making its demand highy elastic.
Reason (R) When more goods are demanded even at a higher price, demand becomes elastic. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Both are false

B

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Demand for gold is widespread observable fact around the world, in which India’s share alone comes to around 25%.Hutti gold mine company located in Karnataka is the only company in India which produces gold by mining and processing the gold ore. Over the past 5 years; Indians have recycled an average of 105 tons of gold per annum. In October, 2008, demand for gold increased ;  celebrations like Diwali and Akshaya Tritiya was the main factor for this vast increase in demand. Imports of gold started falling from December, 2008 by 83%,  ollowed by 91% in January, 2009. In March, 2009 imports were zero. In 2010, demand went up and the price alsowent up. Indian people tend to invest in gold because of culture and  belief, so the demand always remains elastic. In 2011, Indians enjoyed a rapid increase in income, which made the Indians to consume more and more gold even though the price was increasing Certain non-price factors like income of the consumer, prices of related goods, consumers taste and preferences , population and expected future price of the good also  effects the increase in the price of gold. Later on, in the year 2012, platinum , which is a substitute good for gold started declining from ` 35,000 to ` 22,000 which made the people of India to purchase platinum as a substitute good for gold.

Question. What is the nature of demand curve for gold in Indian market?
(a) Upward sloping
(b) Downward sloping
(c) Horizontal line parallel to X-axis
(d) Vertical line parallel to Y-axis

A

Question. In spite of recent pandemic ‘COVID-19’, the demand for gold in Indian market remained ……….. .
(a) high
(b) low
(c) constant
(d) Either (a) or (b)

A

Question. What are the various determinants of gold price in India except its own price?
(a) Income of consumer
(b) Price of related goods
(c) Taste and preferences
(d) All of the above

C

Question. What will be impact on demand curve for gold jewellery if government imposes heavy tariff on import of gold?
(a) Movement upwards
(b) Movement downwards
(c) Shifts to the right
(d) Shifts to the left

D

Question. Assertion (A) Constant demand for gold during pandemic shows the strong preference of Indians for gold.
Resons (R) Gold is demanded in India both for investment and jewellery purposes. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true,but Reason (R) is not the correct  explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

A

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How quickly will American businesses reopen after COVID-19 lockdowns end ? A nationwide survey was conducted of small  businesses to measure firms’ expectations about their re-opening and future demand.  A plurality of firms in our sample expect to reopen within days of the end of legal estrictions, but a sizable minority expect to delay their reopening. While health-related variables, such as COVID-19 case rates and physical proximity of workers, do explain the prevalence and  duration of regulated lockdown, these variables have  little or no correlation with post-lockdown reopening intentions. Instead, almost one half of closed or partially open businesses said that their reopening  would depend on the reopening of related businesses, including customers and suppliers. Owners expect demand to be one-third lower than before the crisis through autumn. Firms with more pessimistic expectations about demand predict a later reopening. Using an instrumental variables strategy, we estimate the relationship between demand expectations and reopening. These estimates suggest that post-lockdown delays in reopening can be explained by low levels of expected demand. Source-Harvard Business School Working Knowledge Baker Library.

Question. Why demand was low even after the lockdown restrictions were lifted in America?
(a) Fall in income
(b) Lack of availability of factors
(c) Fear of corona virus outbreak
(d) Both (a) and (c)

A

Question. As a result of fall in demand, demand curve will ……… .
(a) shifts rightwards
(b) shifts leftwards
(c) moves downwards
(d) moves upwards

B

Question. What is the elasticity of demand for necessity goods in the above situation?
(a) Elastic
(b) Inelastic
(c) Perfectly inelastic
(d) Perfectly elastic

B

Question. Demand curve for essential commodity will have ………… shape.
(a) downward sloping and steeper
(b) downward sloping and flatter
(c) upward sloping and steeper
(d) upward sloping and flatter

A

Question. Assertion (A) Owners of general stores expected demand to be one-third lower in post pandemic situation.
Reason (R) Worldwide lockdowns lead to fall in economic activities and per capita income of the country. Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

A

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Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay for it, you have no effective demand. What a buyer pays for a unit of the specific good or service is called price. The total number of units purchased at that price is called the quantity demanded. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand are held constant.

Question. The law of demand states that: –
(a) When prices rise demand rises.
(b) When prices rise demand falls
(c) When income rises demand rises
(d) When income rises demand falls.

B

Question. When the price of a substitute of commodity X rises, the demand for X_______
(a) Rises
(b) Falls
(c) Remains constant
(d) None of the above

A

Question. Demand has reference to: –
(a) A given period of time
(b) A given price
(c) A given period of time and given price
(d) None of the above.

C

Question. Law of demand must fail in case of: –
(a) Normal goods
(b) Giffen goods
(c) Inferior goods
(d) None of these

B

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A consumer is an economic agent who uses goods and services for the direct satisfaction of his / her wants. Consumer consists of institution, individuals and groups of individuals or households. Consumer behaviour refers to the way in which consumers spend their income. The consumer derives utility from his expenditure. The consumer chooses his expenditures and maximums his utility with the given income and given prices of goods and services. Consumption of goods and services leads to satisfaction of human wants. This satisfaction is called “Utility”. Utility may be defined as “satisfaction derived from the consumption of a commodity” or it may be defined as “want-satisfying power of a commodity”.Total Utility (TU) It is the sum total of utility derived from the consumption of all the units of a commodity .Marginal Utility (MU) It refers to additional utility on account of the consumption of an additional unit of a commodity.

Question.Utility in economics means: –
(a) Want satisfying power of a commodity
(b) Pleasure
(c) Happiness
(d) Usefulness

A

Question. Marginal utility is: –
(a) Total minus average utility
(b) Addition to total utility
(c) Total plus average utility
(d) Total utility divided by the number of units

B

Question. When total utility increases marginal utility is: –
(a) Negative and increasing
(b) Negative and declining
(c) Zero
(d) Positive and declining

D

Question. At the saturation point for commodity X, the MU is: –
(a) Positive
(b) Negative
(c) Zero
(d) Any of the above