Skip to main content

🎓 New resources added daily! Join over 50,000 students using Padandas

Write any four assumptions of indifference curve.

Write any four assumptions of indifference curve.

Solution

Indifference curve analysis rests on several assumptions, four important ones being:

  1. Rationality: the consumer aims to maximise satisfaction within their given income and prices.
  2. Ordinal utility: utility is expressed only as an order of preferences (ranking), not in measurable numbers.
  3. Non-satiety: the consumer is never fully satisfied, so more of a good is always preferred to less.
  4. Diminishing marginal rate of substitution: as one good is substituted for another, the rate at which the consumer gives up the second good keeps falling.

Explore more questions

  1. 1.

    Using IQ map and Iso-cost line, explain the concept of least cost combination of two inputs under given total cost outlay. What will be the effect on output when total cost outlay changes? [10+5]

    Asked in 2081 (15 marks)
  2. 2.

    Describe the characteristics of oligopoly. How are the price and the output determined under cartel?

    Asked in 2081 (15 marks)
  3. 3.

    Let Cost function TC = 50+6Q², Revenue function TR = 100Q - 4Q².

    a. Compute TFC, TVC, TC, TR and profit at output range of 0 to 10 units. [5]

    b. Using schedules, explain the behaviour of TFC, TVC and TC with proper reasons. [5]

    c. Graph TR, TC and profit, and explain TR- TC approach of firm equilibrium. [5]

    Long question Asked in 2081 (15 marks)
  4. 4.

    Let a consumer selects two goods, i.e. x and y for consumption having prices of Rs. 1600 and Rs. 800 respectively and fixed income with Rs. 16,000.

    a. Derive budget line and determine equilibrium point when he allocates entire budget equally on two goods.

    b. Let, price of x good falls to Rs, 800. Derive the two budget line and determine new equilibrium point when he spends Rs. 6,400 on x good and Rs. 9,600 on y good.

    c. Derive price demand curve for x good.

    Long question Asked in 2081 (10 marks)
  5. 5.

    Identify the factors that cause wage differentials and explain them.

    Asked in 2081 (10 marks)
  6. 6.
    PRICE (RS) QDX = 100-5PX QSX = 30+5PX
    5 - -
    6 - -
    7 - -
    8 - -
    9 - -
    10 - -

    a. Complete the table and determine equilibrium price and quantity. [3.5]

    b. What Will be effect on equilibrium price and quantity when demand and supply function increase to Qd'x=120-5Px and Q'sx = 40+5Px, respectively ? [3.5]

    c. Compute price elasticity of demand at both equlibrium price and compare the results. [3]

    Long question Asked in 2081 (10 marks)