KSLU Solved Question Papers
Micro Economics
Previous Year Question Paper with Solution
B.Com. LL.B. (Five Years) · Sem 1
2025 Jan Examination
munotes.in
Mumbai
B.Com. LL.B. (Five Years) Sem 1 Micro Economics 2025 Jan Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2025 Jan examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025 Jan examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Briefly explain the law of diminishing marginal utility.[16]
Answer
For full marks, cover: the meaning of utility, total utility and marginal utility; the statement of the law, with Gossen (1854) and Marshall in his words; the assumptions; a worked schedule and the diagram; the reasons why marginal utility diminishes; the relationship between total and marginal utility; the exceptions; the importance of the law; its limitations; and a conclusion.
Meaning of utility
Utility is the want-satisfying power of a commodity. A good has utility if it can satisfy a human want. Utility is not the same as usefulness. Liquor has utility for a person who wants it, though it may not be useful. Utility also depends on the person and the moment: a blanket has great utility on a cold night and little in summer.
- Total utility (TU) is the total satisfaction from consuming all the units of a good.
- Marginal utility (MU) is the addition to total utility from consuming one more unit. If TU rises from 18 to 24 when a third unit is consumed, the MU of the third unit is 6.
Statement of the law
The law of diminishing marginal utility is one of the most basic laws of economics. It was first stated by the German writer H.H. Gossen in 1854 and is known as Gossen's first law.
Alfred Marshall stated it in Principles of Economics (eighth edition, 1920): "the additional benefit which a person derives from a given increase of his stock of a thing, diminishes with every increase in the stock that he already has."
In simple words, the more units of a good a person consumes at a stretch, the less satisfaction each extra unit gives.
Assumptions
- Utility can be measured in cardinal numbers, called utils.
- The units are of the same size and quality. A small glass followed by a large one would distort the result.
- Consumption is continuous, without a gap of time between units.
- The consumer's tastes, habits and income do not change.
- The consumer is normal and rational.
- The prices of the good and its substitutes do not change.
Worked schedule
Ravi comes home on a hot afternoon and drinks glasses of water one after another.
| Glass | Marginal utility (utils) | Total utility (utils) |
|---|---|---|
| 1st | 10 | 10 |
| 2nd | 8 | 18 |
| 3rd | 6 | 24 |
| 4th | 4 | 28 |
| 5th | 2 | 30 |
| 6th | 0 | 30 |
| 7th | -2 | 28 |
The first glass gives great relief, 10 utils. Each further glass gives less: 8, 6, 4, then 2. The sixth glass gives nothing, and the seventh actually causes discomfort, with a marginal utility of -2.
Diagram
Draw two panels with glasses on the horizontal axis.
- In the upper panel, draw the TU curve. It rises at a falling rate, reaches its peak at the sixth glass and then falls.
- In the lower panel, draw the MU curve. It slopes downward, cuts the horizontal axis at the sixth glass, and goes below the axis after it.
Why marginal utility diminishes
- Each want is satiable. Wants as a whole are unlimited, but a particular want can be fully satisfied at a given time. As it is satisfied, the urge for more falls.
- Goods are imperfect substitutes. If one good could replace another perfectly, the consumer could satisfy many wants with the same good. Since goods are imperfect substitutes, extra units of one good meet an ever weaker want.
- Different uses. A good may have several uses of different importance. The first units serve the most important uses and later units serve less important ones. Water is first used for drinking, then for cooking, then for washing, then for watering plants.
Relationship between TU and MU
| Marginal utility | Total utility |
|---|---|
| Positive and falling | Rises at a falling rate |
| Zero | At its maximum (point of satiety) |
| Negative | Falls |
So total utility is greatest where marginal utility is zero. A rational consumer will not consume beyond that point even if the good is free.
How the law decides how much a consumer buys
Suppose utility is measured in rupees, so that a utility of 10 means the consumer would pay Rs 10 for that unit. Glasses of fresh juice are sold at Rs 4 each, and Ravi's marginal utilities are as in the schedule above. He buys the first glass, worth Rs 10 to him, the second, worth Rs 8, and the third, worth Rs 6. The fourth is worth exactly Rs 4, the price, so he buys it too. The fifth is worth only Rs 2, less than the price, so he stops at four glasses. A consumer buys a good up to the point where its marginal utility equals its price. If the price falls to Rs 2, he buys a fifth glass. That is the law of demand, derived from diminishing marginal utility.
The law in everyday life
- A hungry person enjoys the first chapati most; by the fifth, he is reluctant to eat more.
- A student enjoys the first hour of a film more than the third hour of the same film watched again.
- A family buying its first fan values it greatly; a fourth fan for the same small house adds little comfort.
In each case the extra unit satisfies a weaker want than the one before.
Exceptions and apparent exceptions
- Money. It is often said that the more money a person has, the more he wants. But the marginal utility of money does fall; a rupee matters less to a rich person than to a poor one.
- Hobbies and collections. A stamp collector may value each rare stamp more as his collection grows. Here each stamp is in fact a different good.
- Music and poetry. Repeated listening to a good song may increase enjoyment for a while.
- Liquor and addiction. The urge for more may grow at first. The law eventually applies, and the assumption of a normal consumer is not met.
Most of these exceptions arise because an assumption is broken: the units are not identical, the consumer is not normal, or consumption is not continuous.
Importance of the law
- Basis of the law of demand. Because each unit gives less utility, a consumer buys more only at a lower price. So the demand curve slopes downward.
- Basis of consumer's surplus. The buyer pays the same price for every unit but values earlier units more.
- Basis of the law of equi-marginal utility. The consumer spreads his income across goods because marginal utility in each falls.
- Diversity in consumption. People buy a variety of goods rather than more and more of one good.
- Progressive taxation. The marginal utility of money is lower for the rich. So a tax on a rich person's extra rupee causes less sacrifice than a tax on a poor person's rupee. This supports higher tax rates on higher incomes.
- The value paradox. Water is essential yet cheap, while diamonds are inessential yet dear. Water is plentiful, so its marginal utility is low. Diamonds are scarce, so their marginal utility is high. Price depends on marginal, not total, utility.
Limitations
- Utility cannot really be measured in numbers.
- The assumptions are rarely met in full, especially continuous consumption of identical units.
- It ignores the effect of one good on another, as with complementary goods such as tea and sugar.
The law and the paradox of value
The law also solves an old puzzle. Adam Smith put it in The Wealth of Nations (1776), Book I, chapter IV: "Nothing is more useful than water; but it will purchase scarce any thing; scarce any thing can be had in exchange for it." He went on: "A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it."
The law of diminishing marginal utility explains why. Water is plentiful, so people use a great deal of it. Its total utility is very high, but the marginal utility of the last litre is very low. Diamonds are scarce, so the marginal utility of one more diamond stays high. Price depends on marginal utility, not on total utility. So water is cheap and diamonds are dear.
Conclusion. The law of diminishing marginal utility deals with a person consuming more units of a good at a stretch. It states that the extra satisfaction from each unit falls. Gossen stated it in 1854, and Marshall gave it its classic form. In Ravi's case, the marginal utility of water falls from 10 utils to zero at the sixth glass. There total utility reaches its maximum of 30. The law rests on the satiability of particular wants. It explains the downward slope of demand, consumer's surplus, the variety of consumption and the case for progressive taxation. It does so even though utility cannot be measured exactly.
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