Theory Of Consumer Behaviour

What do you mean by the budget set of a consumer?

What is budget line?

Explain why the budget line is downward sloping.

A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer’s income is Rs 20.

How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?

How does the budget line change if the price of good 2 decreases by a rupee but the price of good 1 and the consumer’s income remain unchanged?

What happens to the budget set if both the prices as well as the income double?

Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?

Suppose a consumer wants to consume two goods which are available only in integer units. The two goods are equally priced at Rs 10 and the consumer’s income is Rs 40.

What do you mean by ‘monotonic preferences’?

If a consumer has monotonic preferences, can she be indifferent between the bundles (10, 8) and (8, 6)?

Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?

Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?

Suppose there are two consumers in the market for a good and their demand functions are as follows: $d_1(p) = 20 - p$ for any price less than or equal to 20, and $d_1(p) = 0$ at any price greater than 20. $d_2(p) = 30 - 2p$ for any price less than or equal to 15 and $d_1(p) = 0$ at any price greater than 15. Find out the market demand function.

Suppose there are 20 consumers for a good and they have identical demand functions: $d(p) = 10 - 3p$ for any price less than or equal to $\frac{10}{3}$ and $d_1(p) = 0$ at any price greater than $\frac{10}{3}$. What is the market demand function?

Consider a market where there are just two consumers and suppose their demands for the good are given as follows: Calculate the market demand for the good.

What do you mean by a normal good?

What do you mean by an ‘inferior good’? Give some examples.

What do you mean by substitutes? Give examples of two goods which are substitutes of each other.

What do you mean by complements? Give examples of two goods which are complements of each other.