Sita and Geeta are two close friends and both are graduate working women. Sita is an economic graduate and doing research in economics while Geeta is a customer relation manager in a multinational company. In 1st January, 2023 both the friends decide to go out for a dinner to celebrate new year. Geeta is fond of Ice-Cream (Orange bar) and has decided to buy from a street vendor ₹10 unit after discount. She has also offered to Sita but Sita denied as having throat infection.

Geeta has requested to Sita to apply economics principles and to respond, when she should be stopped consuming more ice-cream. On consuming 3rd unit of Ice-cream, Geeta has obtained additional satisfaction of 18 units while the marginal utility of a rupee is 2 utils.

Which of the following is not the assumption of Utility Approach?

Price of the commodity remain constant.

The correct answer is option (1) : Price of the commodity remain constant.

Price of the commodity remains constant: This is not an assumption of the Utility Approach. In reality, prices of goods and services can fluctuate due to various factors such as market conditions, demand-supply dynamics, and government policies.

The other options are assumptions of the Utility Approach:

• Law of diminishing marginal utility exists: This states that as a consumer consumes more units of a good or service, the additional satisfaction (marginal utility) derived from each additional unit tends to decrease.
• Utility is expressed in terms of utils: Utils are hypothetical units used to measure utility, which represents the satisfaction or usefulness that a consumer obtains from consuming a good or service.
• Consumer has monotonic preferences: This means that consumers always prefer more of a good to less, assuming all else equal.