Question

Which of the following are correct statements ?
(A) Marginal Utility is the change in Total Utility due to consumption of one additional unit of commodity.
(B) Two Indifference Curves intersect each other.
(C) Marginal Utility becomes Zero at a level when Total Utility remains constant.
(D) Diminishing Marginal Rate of Substitution does not affect Indifference Curve.
(E) Indifference Curve slopes downwards from left to right.
Choose the correct answer from the options given below :

• A. (A), (B) and (E) only
• B. (A), (C) and (E) only
• C. (A), (D) and (E) only
• D. (B), (D) and (E) only

Answer 1

The Correct Option is B

To determine which statements are correct, let's evaluate each one: 

• (A) Marginal Utility is the change in Total Utility due to consumption of one additional unit of commodity. Marginal Utility (MU) is indeed the additional satisfaction obtained from consuming one more unit of a good or service. This statement is correct.
• (B) Two Indifference Curves intersect each other. Indifference curves represent different levels of satisfaction. If two were to intersect, it would imply inconsistent preferences, which contradicts consumer theory. Thus, this statement is incorrect.
• (C) Marginal Utility becomes Zero at a level when Total Utility remains constant. When MU is zero, Total Utility (TU) has reached its maximum and remains constant at this point. Therefore, this statement is correct.
• (D) Diminishing Marginal Rate of Substitution does not affect Indifference Curve. The Diminishing Marginal Rate of Substitution (MRS) influences the curvature of the indifference curve, as it governs the rate at which a consumer substitutes one good for another. Thus, this statement is incorrect.
• (E) Indifference Curve slopes downwards from left to right. Indifference curves generally slope downwards from left to right, indicating that to maintain the same level of utility, an increase in one good requires a decrease in another. This statement is correct.

Given the evaluation, the correct statements are (A), (C), and (E). Thus, the correct option is: (A), (C) and (E) only

Answer 2

Marginal Utility refers to the additional satisfaction or benefit derived from consuming one more unit of a good or service. It is the change in Total Utility as a result of consuming an additional unit. Marginal Utility typically decreases as more units of a good are consumed, which is known as the law of diminishing marginal utility. This means that as a person consumes more of a good, the added satisfaction from each additional unit tends to diminish.

Marginal Utility becomes zero when Total Utility reaches its maximum point, meaning that any additional consumption does not increase overall satisfaction or benefit. At this stage, Total Utility becomes constant, and further consumption of the good no longer adds value.

The Indifference Curve represents different combinations of two goods that provide the consumer with the same level of satisfaction or Total Utility. These curves typically slope downward, reflecting the trade-off between the two goods. As a consumer gives up some quantity of one good, they must receive more of the other good to maintain the same level of satisfaction. The downward slope of the curve demonstrates the substitution effect, where consumers substitute one good for another while keeping their utility constant.