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󷘹󷘴󷘵󷘶󷘷󷘸 GNDU Most Repeated (Important) Quesons
B.B.A 1st Semester
MANAGERIAL ECONOMICS – I
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
󷡉󷡊󷡋󷡌󷡍󷡎 Must-Prepare Quesons (80–100% Probability)
SECTION–A (Ulity & Demand Analysis)
1. 󷄧󼿒 Law of Diminishing Marginal Ulity / Equi-Marginal Ulity – Meaning, Explanaon,
Limitaons, and Importance
󹴢󺄴󹴯󹴰󹴱󹴲󹴳󺄷󺄸󹴴󹴵󹴶󺄵󺄹󺄶 Appeared in: 2021 (Q1), 2022 (Q1), 2023 (Q2), 2024 (Q2)
2. 󷄧󼿒 Law of Demand – Meaning, Assumpons, and Limitaons
󹴢󺄴󹴯󹴰󹴱󹴲󹴳󺄷󺄸󹴴󹴵󹴶󺄵󺄹󺄶 Appeared in: 2021 (Q2), 2024 (Q1)
3. 󷄧󼿒 Elascity of Demand – Meaning, Measurement, and Importance
󹴢󺄴󹴯󹴰󹴱󹴲󹴳󺄷󺄸󹴴󹴵󹴶󺄵󺄹󺄶 Appeared in: 2022 (Q2), 2023 (Q1)
󹵍󹵉󹵎󹵏󹵐 2025 Smart Predicon Table
(Based on GNDU 2021–2024 Trend)
󷄧󹻘󹻙󹻚󹻛
Queson Topic
Years Appeared
Probability for 2025
1
Law of Diminishing / Equi-Marginal Ulity
2021–24
󽇐󽇐󽇐󽇐󽇐 (100%)
2
Law of Demand
2021 & 2024
󽇐󽇐󽇐󽇐󽇐 (100%)
3
Elascity of Demand
2022–23
󽇐󽇐󽇐󽇐 (90%)
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2025 GUARANTEED QUESTIONS (100% Appearance Trend)
󼩏󼩐󼩑 Top 7 Must-Prepare Topics (Appeared in All or Most Years)
1. 󷄧󼿒 Crically explain the Law of Diminishing / Equi-Marginal Ulity and its
limitaons.
2. 󷄧󼿒 Dene Demand and explain the Law of Demand with its assumpons and
excepons.
3. 󷄧󼿒 Explain the Law of Supply and its limitaons in detail.
󷘹󷘴󷘵󷘶󷘷󷘸 BONUS HIGH-PRIORITY (80–90%) Quesons
8. 󷄧󼿒 Describe the Concept of Elascity of Demand and methods of its measurement.
󷘹󷘴󷘵󷘶󷘷󷘸 GNDU Most Repeated (Important) Answer
B.B.A 1st Semester
MANAGERIAL ECONOMICS – I
(Based on 4-Year GNDU Queson Paper Trend Analysis: 2021–2024)
󷡉󷡊󷡋󷡌󷡍󷡎 Must-Prepare Quesons (80–100% Probability)
SECTION–A (Ulity & Demand Analysis)
󷄧󼿒 Law of Diminishing Marginal Ulity / Equi-Marginal Ulity – Meaning, Explanaon,
Limitaons, and Importance
󹴢󺄴󹴯󹴰󹴱󹴲󹴳󺄷󺄸󹴴󹴵󹴶󺄵󺄹󺄶 Appeared in: 2021 (Q1), 2022 (Q1), 2023 (Q2), 2024 (Q2)
Ans: 󷋇󷋈󷋉󷋊󷋋󷋌 A Fresh Beginning…
Have you ever noticed how the first bite of your favourite chocolate feels magical, but
by the time you finish the fourth or fifth piece, the excitement almost disappears? Or
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how drinking water when you’re thirsty feels heavenly, but after a few glasses, you just
don’t feel like drinking anymore? This simple real-life feeling is not just a human
emotion—it is a law in economics known as the Law of Diminishing Marginal Utility.
Economics may seem full of theories and graphs, but at its core, it is simply the science
of human behaviour. It observes how we make choices while consuming goods and
services. And one of the most basic laws that explain our psychology of satisfaction is
this one. Let’s explore it like a story so that you don’t just memorize it—you understand
it.
󷄧󼿒 Part 1: Law of Diminishing Marginal Utility (LDMU)
󽇐 Meaning
The Law of Diminishing Marginal Utility states that:
As a consumer consumes more and more units of a commodity, the utility (satisfaction)
derived from each additional unit goes on decreasing, while total utility increases at a
decreasing rate. Eventually, marginal utility becomes zero or even negative.
Let’s break it into simple lines:
• Utility = Satisfaction
• Marginal utility = Additional satisfaction from consuming one more unit
• Diminishing = Falling or reducing
So, in simple words:
✔ The more you consume something, the less satisfaction you get from each extra unit.
󹶓󹶔󹶕󹶖󹶗󹶘 Story-like Explanation
Imagine a boy named Rohan returning home after playing cricket under the hot sun. He
is extremely thirsty. His mother gives him glasses of water one by one.
Glass of Water
Total Utility (TU)
Marginal Utility (MU)
1st glass
15 units
+15
2nd glass
28 units
+13
3rd glass
38 units
+10
4th glass
45 units
+7
5th glass
49 units
+4
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6th glass
50 units
+1
7th glass
48 units
–2 (negative utility)
Look at his satisfaction:
• The first glass gives great pleasure.
• The second and third still give satisfaction but lesser than the previous.
• By the sixth glass, the thirst is gone—almost no satisfaction.
• The seventh glass gives him discomfort—negative utility.
This is exactly what the law explains.
󹵙󹵚󹵛󹵜 Assumptions of the Law
For this law to work properly, economists made some assumptions:
1. The consumer is rational.
2. Units of consumption are standard and not too small or too big.
3. Taste, habits, and income remain constant.
4. Goods consumed are homogeneous (all units same quality).
5. Continuous consumption without gap.
6. Utility can be measured in numbers (cardinal measurement).
󷘹󷘴󷘵󷘶󷘷󷘸 Importance of Law of Diminishing Marginal Utility
Importance
MU falls → willingness to pay falls → demand curve slopes
downward
Explains why diamonds are costlier and water is cheaper
Justifies progressive taxation—rich should pay more
Helps understand choice and consumption patterns
Encourages firms to vary products (flavours, sizes)
󽁔󽁕󽁖 Limitations of the Law
Limitation
Reason
Based on unrealistic assumptions
Tastes don't always stay constant
Difficult to measure utility
Satisfaction cannot always be measured
Not applicable to hobbies
Example: collecting stamps or coins
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Not valid for addictive goods
Liquor, cigarettes give false increasing MU initially
󷄧󼿒 Part 2: Law of Equi-Marginal Utility (LEMU)
Now that you understand diminishing marginal utility, the second law becomes very
simple. It tells us how a consumer spends his limited income on various goods to get
maximum satisfaction.
󽇐 Meaning
Also called The Law of Substitution or Law of Maximum Satisfaction, it states:
A rational consumer allocates his money income among various goods in such a way that
the marginal utility per unit of money spent is equal for all goods.
In formula form:
𝑀𝑈
𝑥
𝑃
𝑥
=
𝑀𝑈
𝑦
𝑃
𝑦
=
𝑀𝑈
𝑧
𝑃
𝑧
This means a consumer keeps switching between goods until the last rupee spent gives
equal satisfaction from all goods.
󽆪󽆫󽆬 Simple Story Example
Suppose Anita has ₹100 to spend. She loves tea and biscuits. Price:
• 1 cup tea = ₹10
• 1 biscuit pack = ₹20
She records MU as:
Units
MU from Tea
MU from Biscuits
1
40
60
2
30
50
3
20
40
4
10
30
5
5
20
She will spend in a way that:
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𝑀𝑈
𝑇
𝑃𝑟𝑖𝑐𝑒
𝑇
=
𝑀𝑈
𝐵
𝑃𝑟𝑖𝑐𝑒
𝐵
So:
30
10
=
60
20
= 3 (equal satisfaction)
So she buys:
󷄧󼿒 2 teas and 1 biscuit pack.
This gives her maximum satisfaction from ₹100.
󷄧󼿒 Importance of Law of Equi-Marginal Utility
Area
Importance
Basis of consumer choice
Explains how consumers spend money wisely
Resource allocation
Applied in family budgets, business and even governments
Finance
Helps firms divide funds in different departments
Public expenditure
Government funds are allocated on basis of utility
󽁔󽁕󽁖 Limitations
Limitation
Explanation
Assumes rational behavior
Not always practical
Utility can't be measured
Satisfaction is psychological
Income and prices assumed constant
Not true in real life
Not applicable for indivisible goods
Example: car, house
󷄧󼿒 Conclusion
Both the Law of Diminishing Marginal Utility and Law of Equi-Marginal Utility are
fundamental in understanding how consumers think, feel, and make decisions. One
explains how satisfaction falls with continuous consumption, and the other teaches
how consumers maximize satisfaction with limited resources.
Together, they prove one beautiful fact:
Economics is not just about money—it is about human choices.
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󷄧󼿒 Law of Demand – Meaning, Assumpons, and Limitaons
󹴢󺄴󹴯󹴰󹴱󹴲󹴳󺄷󺄸󹴴󹴵󹴶󺄵󺄹󺄶 Appeared in: 2021 (Q2), 2024 (Q1)
Ans: You walk into a fruit market on a hot summer day. Mangoes are stacked high, their
fragrance filling the air. At one stall, the vendor shouts, “₹100 per dozen!” You hesitate.
At another stall, the price is ₹60 per dozen. Suddenly, you’re tempted to buy two dozen
instead of one. Without realizing it, you’ve just acted out one of the most fundamental
principles of economics—the Law of Demand.
This law is not just about mangoes; it’s about how humans behave when prices change.
Let’s explore it step by step: its meaning, assumptions, and limitations, in a way that
feels like a story rather than a dry theory.
󷈷󷈸󷈹󷈺󷈻󷈼 Meaning of the Law of Demand
The Law of Demand states:
Other things remaining the same (ceteris paribus), the quantity demanded of a
commodity increases when its price falls, and decreases when its price rises.
• In simple words: Price and demand move in opposite directions.
• If price goes up → demand goes down.
• If price goes down → demand goes up.
Example:
• At ₹100 per movie ticket, only 50 people may watch.
• At ₹50 per ticket, 200 people may watch.
• The cheaper the ticket, the more people are willing to buy.
Graphically:
• The demand curve slopes downward from left to right, showing the inverse
relationship between price and quantity demanded.
Story Note: Think of it like a seesaw—when price goes up, demand goes down; when
price goes down, demand goes up.
󷈷󷈸󷈹󷈺󷈻󷈼 Assumptions of the Law of Demand
The law works only if certain conditions are met. Economists call these assumptions.
Without them, the law may not hold true.
1. Ceteris Paribus (Other Things Constant)
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• Income, tastes, population, and prices of related goods remain unchanged.
• Only price is allowed to vary.
2. No Change in Consumer’s Income
• If income rises, people may buy more even at higher prices.
• So, the law assumes income is constant.
3. No Change in Tastes and Preferences
• If suddenly a product becomes fashionable, demand may rise even if price is high.
• The law assumes tastes remain stable.
4. No Change in Prices of Related Goods
• Substitutes (tea vs. coffee) and complements (car vs. petrol) must remain at the
same price.
• Otherwise, demand may shift for reasons other than price.
5. No Expectation of Future Price Changes
• If people expect prices to rise tomorrow, they may buy more today even at
higher prices.
• The law assumes no such expectations.
6. Normal Goods Only
• The law applies to normal goods (where demand rises with income).
• It does not apply to inferior goods or prestige goods.
Story Note: Imagine the law of demand as a delicate balance—it works only if the
background stays still. If income, fashion, or substitutes change, the balance is disturbed.
󷈷󷈸󷈹󷈺󷈻󷈼 Limitations of the Law of Demand
While the law is powerful, it is not universal. There are exceptions and limitations
where demand does not behave as expected.
1. Giffen Goods
• Named after Sir Robert Giffen.
• These are inferior goods where demand rises when price rises.
• Example: Poor families buying more coarse grain when its price rises, because
they cannot afford better food.
2. Prestige or Veblen Goods
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• Luxury items like diamonds, designer clothes, or sports cars.
• Higher prices make them more desirable as a status symbol.
• Demand may rise with price.
3. Necessities
• Essential goods like salt, medicines, or electricity.
• Even if price rises, demand does not fall significantly.
4. Future Expectations
• If people expect prices to rise in the future, they may buy more today even at
higher prices.
• Example: Gold purchases before festive seasons.
5. Ignorance of Consumers
• Sometimes consumers think higher price means better quality.
• They may buy more at higher prices.
6. Change in Fashion or Taste
• If a product becomes trendy, demand may rise regardless of price.
• Example: Smartphones or branded sneakers.
7. Emergency Situations
• During war, pandemic, or natural disasters, people may buy essentials at any
price.
Story Note: The law of demand is like a general rule of human behavior—but humans
are not robots. Emotions, prestige, ignorance, and emergencies often bend the rule.
󷈷󷈸󷈹󷈺󷈻󷈼 Why the Law of Demand Matters
• It helps businesses set prices.
• It guides governments in taxation policies.
• It explains consumer behavior in markets.
• It forms the foundation for advanced economic theories.
Example in Real Life:
• When e-commerce platforms announce discounts, demand shoots up.
• When petrol prices rise, people reduce unnecessary driving.
󹵍󹵉󹵎󹵏󹵐 Recap in a Narrative Table
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Aspect
Explanation
Example
Meaning
Inverse relation between price
& demand
Movie tickets cheaper → more
viewers
Assumptions
Income, tastes, substitutes
constant
No change in tea price when studying
coffee demand
Limitations
Exceptions where law fails
Diamonds, salt, Giffen goods,
emergencies
󷈷󷈸󷈹󷈺󷈻󷈼 Wrapping the Story
So, the story of the Law of Demand is really the story of how people make choices.
• Its meaning is simple: when prices fall, demand rises, and when prices rise,
demand falls.
• Its assumptions remind us that this law works only in a controlled environment
where other factors remain constant.
• Its limitations show us that human behavior is complex—sometimes prestige,
ignorance, or necessity override the law.
Final Analogy: If economics were a play, the Law of Demand would be the lead actor—
always on stage, guiding the story. But sometimes, side characters like fashion, prestige,
or emergencies steal the spotlight and change the script.
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