Micro Economics

Demand Theory, Elasticity of Demand, Utility Analysis, and Consumer's Surplus

This authoritative module offers theoretical study notes on Demand Theory, Elasticity, Utility Analysis, and Consumer's Surplus. It is meticulously structured for aspirants preparing for competitive examinations such as UP PGT Economics (Subject Code 11), UP TGT Social Science, UGC-NET, and State Assistant Professor exams.

🏛️ Key Economists & Landmark Publications

Alfred Marshall

1890, 'Principles of Economics'

Formulated the cardinal utility approach, law of diminishing marginal utility, concept of consumer's surplus, and price elasticity of demand.

John R. Hicks and R.G.D. Allen

1934, 'A Reconsideration of the Theory of Value'

Introduced the ordinal utility approach using Indifference Curves, eliminating the unrealistic assumption of cardinal measurability.

Eugen Slutsky

1915, 'Sulla teoria del bilancio del consumatore'

Developed the monetary-income constant method to decompose price effect into substitution and income effects.

Paul A. Samuelson

1938, 'A Note on the Pure Theory of Consumer's Behaviour'

Proposed the Revealed Preference Theory, deriving consumer demand behavior from actual market choices without using utility.

Abba P. Lerner

1933, 'The Diagrammatical Representation of Elasticity of Demand'

Refined the geometrical and point elasticity measurements along a linear and non-linear demand curve.

⚖️ Fundamental Assumptions & Hypotheses

Rationality: The consumer is a rational economic agent who aims to maximize total utility subject to a given income and price constraint.
Cardinal Measurability (in Marshallian analysis): Utility can be measured in cardinal units called 'utils' (though ordinal analysis assumes only ranking).
Diminishing Marginal Utility (DMU): As consumption of a good increases, the additional utility derived from each successive unit decreases.
Consistency and Transitivity: Consumer preferences are consistent and transitive (if Bundle A is preferred to B, and B to C, then A is preferred to C).
Convexity of Indifference Curves: Indifference curves are strictly convex to the origin, reflecting a diminishing marginal rate of substitution (MRS).
Perfect Competition and Price Taking: The consumer is a price-taker in the market, having no individual influence over commodity prices.
Non-Satiation (More is Better): Consumers always prefer a larger quantity of a good to a smaller quantity, assuming goods are 'goods' and not 'bads'.

1. Cardinal Utility Analysis & Marshallian Consumer Equilibrium

Marshallian demand theory rests on cardinal utility where utility is quantifiable. Consumer equilibrium for a single commodity is attained where the marginal utility of the good equals its price in money terms (MU_x = P_x), or in utility-per-rupee terms when multiple goods are consumed: (MU_x / P_x) = (MU_y / P_y) = MU_m. The demand curve slopes downward because of the operation of the Law of Diminishing Marginal Utility.

Key Exam Takeaways:

Single commodity equilibrium condition: MU_x = P_x or MU_x / P_x = 1.
Multi-commodity equilibrium condition: (MU_x / P_x) = (MU_y / P_y) =... = MU_m.
Marshall assumed the marginal utility of money (MU_m) remains constant as income changes.

2. Ordinal Utility Analysis: Indifference Curve Approach

Developed by Hicks and Allen, ordinal utility replaces cardinal measurement with preference rankings represented geometrically by Indifference Curves (ICs). An IC represents all combinations of two goods yielding the same level of satisfaction. Consumer equilibrium occurs at the tangency point between the budget line and the highest attainable indifference curve, where the absolute slope of the IC (Marginal Rate of Substitution, MRS_xy) equals the price ratio (P_x / P_y).

Key Exam Takeaways:

Equilibrium condition: MRS_xy = (MU_x / MU_y) = (P_x / P_y).
Properties of IC: Negatively sloped, convex to the origin, non-intersecting, and higher IC represents higher satisfaction.
Convexity of IC ensures a unique internal tangency equilibrium solution.

3. Price, Income, and Substitution Effects (Hicksian & Slutsky Decompositions)

A price change triggers two distinct psychological and economic forces: the Substitution Effect (SE) and the Income Effect (IE). Total Price Effect (PE) = SE + IE. Hicks decomposes PE by keeping real income constant (compensating variation in income by moving along the same IC), while Slutsky decomposes PE by keeping purchasing power constant (allowing the consumer to buy the original bundle at new prices).

Key Exam Takeaways:

For normal goods, SE and IE reinforce each other, yielding a downward-sloping demand curve.
For inferior goods, SE is negative (downward), but IE is positive (upward), though SE usually dominates.
For Giffen goods, the positive IE outweighs the negative SE, resulting in an upward-sloping demand curve.

4. Elasticity of Demand: Types, Measurement, and Determinants

Elasticity measures the responsiveness of quantity demanded to changes in determinants like price, income, or cross-prices. Price Elasticity of Demand (PED) is measured via Point method (lower segment / upper segment), Arc method ((Delta Q / Delta P) * (P_1 + P_2) / (Q_1 + Q_2)), and Total Outlay method. Cross Elasticity measures substitutes (>0) and complements (<0), while Income Elasticity categorizes normal goods (>0) and inferior goods (<0).

Key Exam Takeaways:

Rectangular hyperbola demand curve has unitary elasticity (e = 1) at all points.
Total outlay increases when price falls if demand is elastic (e > 1); it falls if inelastic (e < 1).
Luxury goods have high income and price elasticity, whereas necessities have low elasticities.

5. Consumer's Surplus: Marshallian vs. Hicksian Concepts

Consumer's Surplus is the excess of what a consumer is willing to pay over what they actually pay (Area under demand curve above the market price line). Marshall measures it using cardinal utility and constant MU of money. Hicks refined it using ordinal indifference curve analysis, generating four distinct measures: Compensating Variation (CV), Equivalent Variation (EV), Compensating Surplus, and Equivalent Surplus.

Key Exam Takeaways:

Marshallian Consumer Surplus formula: CS = \int_{0}^{Q_e} f(Q)dQ - P_e \cdot Q_e.
Hicksian CV is the amount of money taken away to keep the consumer on the initial utility level after a price drop.
Hicksian EV is the amount of money given to the consumer before a price change to reach the new higher utility level.

📐 Mathematical Formulations & Equilibrium Conditions

Utility Maximization Equilibrium Condition (Ordinal)

MRSxy = MUxMUy = PxPy

Equates the psychological trade-off between goods to market price exchange ratios.

Price Elasticity of Demand (Point Elasticity)

ep = -dQdP · PQ = \frac{ ext{Lower Segment}}{ ext{Upper Segment}}

Measures percentage change in quantity demanded due to a 1% change in price at a specific point on the demand curve.

Slutsky Equation Decomposition

∂ X∂ Px = ∂ X∂ PxU=const - X ∂ X∂ M

Deconstructs total price effect into pure substitution effect (first term) and income effect (second term).

Cross-Price Elasticity of Demand

exy = \% Δ Qx\% Δ Py = ∂ Qx∂ Py · PyQx

Classifies relationships: positive for substitutes, negative for complements, zero for unrelated goods.

Marshallian Consumer's Surplus Integral

CS = \int0Q^\\ D(P)dP - P^Q^*

Calculates total net welfare gain to consumers paying a uniform market price P for quantity Q.

🧠 Exam Tips, Tricks & Mnemonics (10-Second Shortcuts)

💡 Elasticity Shortcut on Linear Demand Curve L/U Rule (Lower over Upper)

At any point on a straight-line demand curve, PED equals Length of Lower Segment divided by Length of Upper Segment.

Exam Application: Instantly calculate that midpoint elasticity equals 1, upper half is elastic (>1), and lower half is inelastic (<1).

💡 Slutsky vs Hicks Income Effect Direction H-U (Hicks-Utility), S-P (Slutsky-Purchasing)

Remember: Hicks locks Utility; Slutsky locks Purchasing Power.

Exam Application: Quickly eliminate incorrect options in UP PGT questions testing the exact compensation criteria used by both theorists.

💡 Cross Elasticity Sign Mnemonic SUB (+) / COMP (-)

Substitutes have POSITIVE cross elasticity (Tea & Coffee); Complements have NEGATIVE cross elasticity (Car & Petrol).

Exam Application: Instantly answer matching questions in UGC-NET regarding sign conventions without second-guessing.

💡 Total Outlay Method Quick Check P & TO Move Together = Inelastic

If Price and Total Outlay move in the same direction, demand is inelastic (e < 1). If opposite, elastic (e > 1).

Exam Application: Fast mental arithmetic for numerical problems giving price and total expenditure schedules in exams.

⚠️ Economic Paradoxes & Boundary Exceptions

Exception / Paradox Giffen Paradox

Conditions: Applies to inferior goods consumed heavily by low-income households where the positive income effect strongly dominates the negative substitution effect.

Diagrammatic Behavior: The demand curve is positively sloped (slopes upward from left to right) violating the Law of Demand.

Exception / Paradox Veblen Effect (Conspicuous Consumption)

Conditions: Applies to status symbols and luxury goods where higher prices confer greater prestige, increasing demand.

Diagrammatic Behavior: Upward-sloping demand curve driven by snob value and ostentatious display rather than intrinsic utility.

Exception / Paradox Corner Solution

Conditions: Occurs when indifference curves are steeper or flatter everywhere than the budget line, leading the consumer to buy zero units of one commodity.

Diagrammatic Behavior: The equilibrium point lies on one of the coordinate axes rather than an internal tangency.

Exception / Paradox Snob and Bandwagon Effects (Leibenstein)

Conditions: Network externalities where an individual's demand depends on the consumption choices of others.

Diagrammatic Behavior: Demand curve shifts dynamically, becoming highly elastic (bandwagon) or inelastic/backward-bending (snob).

📊 Hicksian vs. Slutsky Price Effect Decomposition

Analytical Parameter	Hicksian Decomposition	Slutsky Decomposition
Level of Real Income Maintained	Utility constant (remains on the initial indifference curve U_1).	Purchasing power constant (enables consumer to buy original bundle).
Graphical Movement	Parallel shift of compensated budget line tangent to original IC.	Rotated budget line passing through the original consumption bundle.
Compensated Demand Curve	Hicksian compensated demand curve is always negatively sloped.	Slutsky compensated demand curve is also negatively sloped.
Observability in Market	Hypothetical and unobservable because utility cannot be measured directly.	Closer to market data since it relies on observable money income adjustments.

⚡ Must-Remember Economic Identities & Laws

Marshallian Utility Maximization Rule: (MUx / Px) = (MUy / Py) = λ (Marginal Utility of Money)
Ordinal Tangency Condition for Equilibrium: MRS12 = MU1MU2 = P1P2 (Slope of IC equals Slope of Budget Line)
Slutsky Equation Decomposition: ∂ X∂ P = ∂ X∂ P U= const - X ∂ X∂ M (Total Effect = Substitution Effect - Income Effect * Quantity)
Hicksian Decomposition Identity: Total Price Effect = Hicksian Substitution Effect + Income Effect (TE = SE + IE)
Point Price Elasticity via Demand Curve Geometry: Ep = Lower SegmentUpper Segment
Total Expenditure Method for Elasticity: If Δ TR moves in opposite direction to Δ P, Ep > 1; if Δ TR moves in same direction, Ep < 1; if TR is constant, Ep = 1
Cross-Price Elasticity Sign Rule: If Exy > 0, X and Y are Gross Substitutes; if Exy < 0, X and Y are Gross Complements

🚫 Common Analytical Confusions (Contrast Table)

Change in Demand VS Change in Quantity Demanded

Change in demand is a shift of the entire demand curve caused by non-price determinants (income, preferences, prices of related goods). Change in quantity demanded is a movement along the same demand curve caused exclusively by a change in the good's own price.

Hicksian Substitution Effect VS Slutsky Substitution Effect

Hicksian substitution keeps utility constant (moves along the same IC), isolating pure substitution under real income constancy. Slutsky substitution keeps purchasing power constant (allows consumer to just buy the old bundle at new prices), moving to a higher IC.

Normal Good VS Inferior Good vs Giffen Good

Normal goods have positive income elasticity ($E_y > 0$). Inferior goods have negative income elasticity ($E_y < 0$). A Giffen good is a special type of inferior good where the negative income effect outweighs the substitution effect, resulting in a positively sloped demand curve.

Marshallian Consumer's Surplus VS Hicksian Consumer's Surplus (CV and EV)

Marshallian CS assumes constant marginal utility of money and is calculated using the ordinary demand curve. Hicksian measures (CV and EV) use compensated demand curves, eliminating income effects and yielding exact welfare changes.

📚 Complete Concept-by-Concept Glossary

Every fundamental term, curve, and mechanism covered in this chapter.

Law of Diminishing Marginal Utility (LDMU): States that as a consumer consumes successive units of a good, holding consumption of all other goods constant, the marginal utility derived from each additional unit eventually declines.

Consumer Equilibrium (Cardinal): Condition where the marginal utility per unit of currency spent on each good is equalized across all consumed goods: $(MU_x / P_x) = (MU_y / P_y) = \lambda$.

Indifference Curve (IC): Locus of points representing different combinations of two goods that yield the same level of total utility to a consumer. It is negatively sloped and convex to the origin.

Marginal Rate of Substitution (MRS): The rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility; equals the slope of the indifference curve ($|dX_2/dX_1|$) and the ratio of marginal utilities ($MU_1 / MU_2$).

Budget Line / Price Line: Locus of combinations of two goods that a consumer can purchase completely given their fixed monetary income and market prices: $P_1X_1 + P_2X_2 = M$.

Price Consumption Curve (PCC): A curve tracing out consumer equilibrium points as the price of one good changes, holding money income and the price of the other good constant. Used to derive the Marshallian demand curve.

Income Consumption Curve (ICC): A curve showing consumer equilibrium combinations as money income changes, holding relative prices constant. Used to derive Engel curves.

Hicksian Substitution Effect: Change in quantity demanded resulting from a change in relative prices alone, keeping the consumer's real income (utility level) constant by compensating money income.

Slutsky Substitution Effect: Change in quantity demanded resulting from a change in relative prices alone, keeping the consumer's purchasing power constant such that they can still afford their original consumption bundle.

Price Elasticity of Demand ($E_p$): Proportionate change in quantity demanded divided by the proportionate change in price: $(% \Delta Q) / (\% \Delta P)$. Measures price sensitivity.

Income Elasticity of Demand ($E_y$): Proportionate change in quantity demanded divided by the proportionate change in consumer income: $(% \Delta Q) / (\% \Delta M)$. Classifies goods into normal, inferior, and luxury.

Cross-Price Elasticity of Demand ($E_{xy}$): Proportionate change in quantity demanded of good X divided by the proportionate change in the price of good Y: $(% \Delta Q_x) / (\% \Delta P_y)$. Determines substitutes and complements.

Marshallian Consumer's Surplus: The difference between the total amount that a consumer is willing to pay for a given quantity of a good and the total amount they actually pay ($CS = \int P(Q)dQ - P_0Q_0$), assuming constant marginal utility of money.

Hicksian Equivalent Variation (EV): The amount of money that would have to be taken away from the consumer before a price change to leave them as well off as they would be after the price change.

Hicksian Compensating Variation (CV): The amount of money that must be given to a consumer after a price change to restore them to their initial utility level prior to the price change.

❓ Interactive Practice Quiz

Select an answer to see instant feedback and complete analytical explanation.

Question 1 of 18

If the total utility function is given by $TU = 10X - 0.5X^2$, what is the marginal utility when consumption is 6 units?

Question 2 of 18

In cardinal utility analysis, if $MU_x / P_x > MU_y / P_y$, what rational adjustment will the consumer make to maximize utility?

Question 3 of 18

An indifference curve is convex to the origin. Which economic principle explains this curvature?

Question 4 of 18

For perfect substitute goods, what is the shape of the indifference curves?

Question 5 of 18

For perfect complementary goods (e.g., left shoe and right shoe), the indifference curve is:

Question 6 of 18

If the Price Consumption Curve (PCC) slopes downward (positively sloped to the right), the price elasticity of demand for that good is:

Question 7 of 18

According to the Slutsky decomposition, the total price effect of a price fall for a normal good is composed of:

Question 8 of 18

A Giffen good is a special case of an inferior good where:

Question 9 of 18

If the demand function is $Q = 50 - 2P$, what is the point price elasticity of demand at $P = 10$?

Question 10 of 18

Along a linear demand curve intersecting both axes, where is the price elasticity of demand equal to unity ($E_p = 1$)?

Question 11 of 18

If cross-price elasticity between good A and good B is negative ($E_{ab} < 0$), the two goods are:

Question 12 of 18

Marshallian Consumer's Surplus is measured graphically as:

Question 13 of 18

Which of the following conditions is required for Marshall's concept of consumer's surplus to be valid?

Question 14 of 18

Which Hicksian measure of welfare change represents the maximum amount a consumer would be willing to pay to avoid a price increase?

Question 15 of 18

If a consumer's income elasticity of demand for a good is 1.5, the good is classified as:

Question 16 of 18

The Engel curve for an inferior good is:

Question 17 of 18

If the demand curve is rectangular hyperbola ($Q = k / P$), what is the price elasticity of demand at any point on the curve?

Question 18 of 18

Which of the following represents the Slutsky equation in elasticity terms (known as the Slutsky decomposition)?

🏛️ Previous Years Questions & Recurring Patterns

Exam patterns from UP PGT Economics, UP TGT Social Science, and UGC NET.

Previous Year Pattern • Q1

Assertion (A): An indifference curve is convex to the origin. Reason (R): The marginal rate of substitution of X for Y diminishes as more of X is substituted for Y.

A. Both (A) and (R) are true, and (R) is the correct explanation of (A)

B. Both (A) and (R) are true, but (R) is not the correct explanation of (A)

C. (A) is true, but (R) is false

D. (A) is false, but (R) is true

Solution: Convexity of indifference curves is a direct geometrical representation of the diminishing marginal rate of substitution (MRS). As you consume more of X, you are willing to give up progressively fewer units of Y, causing the slope to flatten.

Previous Year Pattern • Q2

Match List I (Concept) with List II (Author / Approach): List I: A. Compensating & Equivalent Variation, B. Revealed Preference Theory, C. Consumer's Surplus (Cardinal), D. Slutsky Equation List II: 1. Alfred Marshall, 2. J.R. Hicks, 3. Eugen Slutsky, 4. P.A. Samuelson

A. A-2, B-4, C-1, D-3

B. A-1, B-2, C-3, D-4

C. A-2, B-1, C-4, D-3

D. A-4, B-3, C-2, D-1

Solution: Hicks introduced CV and EV in 'Value and Capital' (A-2). Samuelson formulated Revealed Preference Theory (B-4). Alfred Marshall pioneered cardinal consumer surplus (C-1). Eugen Slutsky derived the price effect decomposition in 1915 (D-3).

Previous Year Pattern • Q3

If the demand curve for a product is given by $P = 100 - 4Q$, what is the consumer surplus at a market price of $20?

A. 800

B. 1600

C. 3200

D. 400

Solution: At $P = 20$, $20 = 100 - 4Q \implies 4Q = 80 \implies Q = 20$. The price intercept is 100. Consumer Surplus is the area of the triangle: $0.5 \times \text{Base} \times \text{Height} = 0.5 \times 20 \times (100 - 20) = 0.5 \times 20 \times 80 = 800$.

Previous Year Pattern • Q4

Which of the following welfare measures does NOT suffer from the limitation of the variable marginal utility of money inherent in Marshallian consumer surplus?

A. Marshallian Consumer's Surplus

B. Hicksian Compensating and Equivalent Variations

C. Total Utility Analysis

D. Cardinal Utility Maximization

Solution: Hicksian measures (CV and EV) are based on ordinal indifference curve analysis utilizing compensated demand curves, thereby completely bypassing the assumption of a constant marginal utility of money.

Previous Year Pattern • Q5

In the context of consumer theory, a Giffen paradox occurs when:

A. Income effect is positive and greater than substitution effect

B. Substitution effect is negative

C. Income effect is negative and dominates the substitution effect for an inferior good

D. Cross elasticity is zero

Solution: A Giffen good is an inferior good where the negative income effect (price drop increases real income, reducing demand) outweighs the positive substitution effect, violating the law of demand.

Previous Year Pattern • Q6

What happens to the consumer's budget line if income doubles and both prices double simultaneously?

A. Budget line shifts outward in a parallel fashion

B. Budget line shifts inward

C. Budget line remains completely unchanged

D. Budget line rotates outward along the X-axis

Solution: The budget constraint is $P_1X_1 + P_2X_2 = M$. If M, $P_1$, and $P_2$ all double, $2P_1X_1 + 2P_2X_2 = 2M$, which simplifies to $P_1X_1 + P_2X_2 = M$. The budget line remains identical.

10 Questions • 10 Minutes Challenge

10:00

Test Item 1 of 10

Given a utility function $U = X_1 X_2$, and budget constraint $2X_1 + 4X_2 = 120$, what is the utility-maximizing quantity of $X_1$?

Test Item 2 of 10

If price elasticity of demand is unitary ($E_p = 1$) across all points on a demand curve, total revenue (TR) as price increases will:

Test Item 3 of 10

Which of the following statements about Hicksian and Slutsky substitution effects is correct?

Test Item 4 of 10

If the cross-price elasticity of demand between butter and margarine is +2.5, how will a 10% increase in the price of butter affect the demand for margarine?

Test Item 5 of 10

What is the economic interpretation of the Lagrange multiplier ($\lambda$) in consumer utility maximization?

Test Item 6 of 10

An individual's demand curve can be derived directly from the expansion path known as:

Test Item 7 of 10

If the income elasticity of demand for a good is negative ($E_y < 0$), the good is definitely:

Test Item 8 of 10

In cardinal utility theory, saturation point refers to the point where:

Test Item 9 of 10

Which of the following is true regarding the compensated demand curve compared to the uncompensated (Marshallian) demand curve for a normal good?

Test Item 10 of 10

Demand Theory, Elasticity of Demand, Utility Analysis, and Consumer's Surplus

🏛️ Key Economists & Landmark Publications

⚖️ Fundamental Assumptions & Hypotheses

1. Cardinal Utility Analysis & Marshallian Consumer Equilibrium

2. Ordinal Utility Analysis: Indifference Curve Approach

3. Price, Income, and Substitution Effects (Hicksian & Slutsky Decompositions)

4. Elasticity of Demand: Types, Measurement, and Determinants

5. Consumer's Surplus: Marshallian vs. Hicksian Concepts

📐 Mathematical Formulations & Equilibrium Conditions

🧠 Exam Tips, Tricks & Mnemonics (10-Second Shortcuts)

⚠️ Economic Paradoxes & Boundary Exceptions

📊 Hicksian vs. Slutsky Price Effect Decomposition

⚡ Must-Remember Economic Identities & Laws

🚫 Common Analytical Confusions (Contrast Table)

📚 Complete Concept-by-Concept Glossary

❓ Interactive Practice Quiz

If the total utility function is given by $TU = 10X - 0.5X^2$, what is the marginal utility when consumption is 6 units?

In cardinal utility analysis, if $MU_x / P_x > MU_y / P_y$, what rational adjustment will the consumer make to maximize utility?

An indifference curve is convex to the origin. Which economic principle explains this curvature?

For perfect substitute goods, what is the shape of the indifference curves?

For perfect complementary goods (e.g., left shoe and right shoe), the indifference curve is:

If the Price Consumption Curve (PCC) slopes downward (positively sloped to the right), the price elasticity of demand for that good is:

According to the Slutsky decomposition, the total price effect of a price fall for a normal good is composed of:

A Giffen good is a special case of an inferior good where:

If the demand function is $Q = 50 - 2P$, what is the point price elasticity of demand at $P = 10$?

Along a linear demand curve intersecting both axes, where is the price elasticity of demand equal to unity ($E_p = 1$)?

If cross-price elasticity between good A and good B is negative ($E_{ab} < 0$), the two goods are:

Marshallian Consumer's Surplus is measured graphically as:

Which of the following conditions is required for Marshall's concept of consumer's surplus to be valid?

Which Hicksian measure of welfare change represents the maximum amount a consumer would be willing to pay to avoid a price increase?

If a consumer's income elasticity of demand for a good is 1.5, the good is classified as:

The Engel curve for an inferior good is:

If the demand curve is rectangular hyperbola ($Q = k / P$), what is the price elasticity of demand at any point on the curve?

Which of the following represents the Slutsky equation in elasticity terms (known as the Slutsky decomposition)?

🏛️ Previous Years Questions & Recurring Patterns

Assertion (A): An indifference curve is convex to the origin. Reason (R): The marginal rate of substitution of X for Y diminishes as more of X is substituted for Y.

Match List I (Concept) with List II (Author / Approach): List I: A. Compensating & Equivalent Variation, B. Revealed Preference Theory, C. Consumer's Surplus (Cardinal), D. Slutsky Equation List II: 1. Alfred Marshall, 2. J.R. Hicks, 3. Eugen Slutsky, 4. P.A. Samuelson

If the demand curve for a product is given by $P = 100 - 4Q$, what is the consumer surplus at a market price of $20?

Which of the following welfare measures does NOT suffer from the limitation of the variable marginal utility of money inherent in Marshallian consumer surplus?

In the context of consumer theory, a Giffen paradox occurs when:

What happens to the consumer's budget line if income doubles and both prices double simultaneously?

Given a utility function $U = X_1 X_2$, and budget constraint $2X_1 + 4X_2 = 120$, what is the utility-maximizing quantity of $X_1$?

If price elasticity of demand is unitary ($E_p = 1$) across all points on a demand curve, total revenue (TR) as price increases will:

Which of the following statements about Hicksian and Slutsky substitution effects is correct?

If the cross-price elasticity of demand between butter and margarine is +2.5, how will a 10% increase in the price of butter affect the demand for margarine?

What is the economic interpretation of the Lagrange multiplier ($\lambda$) in consumer utility maximization?

An individual's demand curve can be derived directly from the expansion path known as:

If the income elasticity of demand for a good is negative ($E_y < 0$), the good is definitely:

In cardinal utility theory, saturation point refers to the point where:

Which of the following is true regarding the compensated demand curve compared to the uncompensated (Marshallian) demand curve for a normal good?

The concept of 'Consumer's Surplus' was originally formulated and introduced into economic literature by:

Test Result: 0/10