Unit -2 Consumer’s Equilibrium and Demand: Concept of Utility: Marginal Utility, total Utility; Consumer’s equilibrium: Law of Diminishing Marginal Utility; Consumer’s Equilibrium using Indifference Curve: Indifference Curve, Indifference map, budget set and budget line, conditions of Consumer’s Equilibrium. Demand: Concept of demand, Law of Demand , Demand Curve, Deriving a demand curve from in difference curves and Budget constraints, Normal Goods inferior Good and Giffen good (concepts) Market Demand, Movement along and shifts in Demand Curve, Price elasticity of Demand: Meaning, Measurement , Factors affecting price elasticity of Demand; Measurement of price elasticity of. demand: Percentage Method and Geometric measure of elasticity of demand Elasticity and Expenditure
MCQs on Consumer Behaviour, Utility, and Demand
1. Consumer Behaviour
What does the problem of choice for a consumer depend on?
A. Prices of goods
B. Consumer's preferences
C. Consumer's income
D. All of the above
Answer: DA combination of two goods in consumer theory is referred to as:
A. Preference set
B. Utility bundle
C. Consumption bundle
D. Indifference curve
Answer: C
2. Utility and Its Measures
Utility refers to the:
A. Monetary cost of goods
B. Satisfaction derived from consuming goods
C. Price of goods
D. None of the above
Answer: BWhat is the utility derived from consuming an additional unit of a commodity called?
A. Total utility
B. Marginal utility
C. Additional utility
D. Diminished utility
Answer: BWhich law states that marginal utility diminishes with increased consumption of a commodity?
A. Law of Demand
B. Law of Diminishing Marginal Utility
C. Law of Supply
D. Law of Increasing Returns
Answer: BWhen total utility is constant, marginal utility is:
A. Positive
B. Negative
C. Zero
D. Infinite
Answer: C
3. Demand Curve
The demand curve represents the relationship between:
A. Price and supply
B. Price and quantity demanded
C. Income and preferences
D. Supply and demand
Answer: BAccording to the law of demand, the demand curve:
A. Slopes upward
B. Slopes downward
C. Remains horizontal
D. Is vertical
Answer: B
4. Indifference Curve
An indifference curve represents:
A. Bundles of goods that give different satisfaction levels
B. Bundles of goods that give the same satisfaction level
C. Price levels of goods
D. Budget constraints of a consumer
Answer: BIf a consumer sacrifices 2 mangoes for 1 additional banana, this is called:
A. Marginal Rate of Substitution (MRS)
B. Marginal Utility
C. Total Utility
D. Indifference substitution
Answer: AThe shape of an indifference curve is usually:
A. Concave to the origin
B. Convex to the origin
C. A straight line
D. A parabola
Answer: BTwo indifference curves can:
A. Intersect each other
B. Be parallel
C. Overlap
D. Be concave
Answer: B
5. Consumer’s Budget
The consumer’s budget line is affected by:
A. Prices of goods
B. Consumer’s income
C. Both A and B
D. Neither A nor B
Answer: CIf the price of one good increases, the budget line:
A. Pivots inward
B. Shifts outward
C. Remains unchanged
D. Pivots outward
Answer: A
6. Elasticity of Demand
Price elasticity of demand measures:
A. Responsiveness of demand to price changes
B. Responsiveness of supply to price changes
C. Changes in consumer income
D. Relationship between two goods
Answer: AIf the demand for a good is perfectly elastic, its demand curve is:
A. Vertical
B. Horizontal
C. Upward-sloping
D. Downward-sloping
Answer: BGoods with an elasticity greater than 1 are considered:
A. Inelastic
B. Elastic
C. Perfectly elastic
D. Unit-elastic
Answer: BWhat type of elasticity is observed when demand changes exactly in proportion to price changes?
A. Perfectly elastic
B. Unitary elastic
C. Perfectly inelastic
D. Substitution elasticity
Answer: B
7. Types of Goods
A good whose demand increases with income is called a:
A. Normal good
B. Inferior good
C. Giffen good
D. Substitute good
Answer: AWhich of the following is an example of a complementary good?
A. Tea and coffee
B. Bread and butter
C. Rice and wheat
D. Cars and bicycles
Answer: BInferior goods are those goods:
A. That consumers buy less of as income rises
B. That have high quality
C. With perfectly elastic demand
D. None of the above
Answer: A
8. Shifts and Movements
A shift in the demand curve occurs when:
A. Price of the good changes
B. Income or preferences change
C. Both A and B
D. None of the above
Answer: BMovement along the demand curve is caused by:
A. Change in income
B. Change in the price of the good itself
C. Change in preferences
D. All of the above
Answer: B
9. Market Demand
Market demand is calculated by:
A. Summing up individual consumer demands
B. Averaging the demand of all consumers
C. Considering only one consumer's demand
D. Dividing demand by the price
Answer: AHorizontal summation is used to:
A. Combine prices of different goods
B. Derive market demand from individual demands
C. Analyze consumer preferences
D. Measure elasticity of demand
Answer: B
MCQs on Advanced Topics in Consumer Behaviour, Demand, and Elasticity
10. Demand Curve and Law of Demand
The downward slope of the demand curve is explained by:
A. Law of increasing marginal utility
B. Law of diminishing marginal utility
C. Law of diminishing returns
D. Law of supply
Answer: BWhen the price of a substitute good increases, the demand for a good:
A. Increases
B. Decreases
C. Remains constant
D. Becomes zero
Answer: AWhat happens to the demand curve of a normal good when income increases?
A. It shifts to the right
B. It shifts to the left
C. It becomes steeper
D. It becomes flatter
Answer: AThe relationship between price and quantity demanded is:
A. Positive
B. Negative
C. Independent
D. Constant
Answer: B
11. Budget Line and Optimal Choice
If a consumer spends her entire budget on one good, she is at the:
A. Horizontal intercept of the budget line
B. Vertical intercept of the budget line
C. Midpoint of the budget line
D. Origin
Answer: AThe slope of the budget line is determined by:
A. Prices of the two goods
B. Income of the consumer
C. Preferences of the consumer
D. Elasticity of demand
Answer: AA parallel outward shift of the budget line indicates:
A. Price increase of one good
B. Price decrease of one good
C. Increase in consumer income
D. Decrease in consumer income
Answer: CAt the point of tangency between the budget line and an indifference curve:
A. The consumer is at equilibrium
B. The consumer sacrifices all income for one good
C. Marginal utility is zero
D. Price ratio is irrelevant
Answer: A
12. Elasticity of Demand
When price elasticity of demand is less than 1, the demand is:
A. Perfectly elastic
B. Elastic
C. Inelastic
D. Unit-elastic
Answer: CWhat is the price elasticity of demand when demand remains constant regardless of price changes?
A. Perfectly elastic
B. Perfectly inelastic
C. Unit-elastic
D. Greater than 1
Answer: BA horizontal demand curve represents:
A. Perfect inelasticity
B. Perfect elasticity
C. Constant demand
D. Fluctuating demand
Answer: BIf the percentage change in quantity demanded equals the percentage change in price, the demand is:
A. Elastic
B. Unit-elastic
C. Inelastic
D. Perfectly inelastic
Answer: B
13. Substitutes, Complements, and Inferior Goods
Goods that can replace each other in consumption are:
A. Normal goods
B. Inferior goods
C. Substitutes
D. Complements
Answer: CTea and sugar are examples of:
A. Substitutes
B. Normal goods
C. Complements
D. Inferior goods
Answer: CIf a good is inferior, its demand:
A. Increases as income rises
B. Decreases as income rises
C. Remains unchanged
D. Has no relation with income
Answer: BA Giffen good violates:
A. Law of Demand
B. Law of Supply
C. Law of Marginal Utility
D. Law of Elasticity
Answer: A
14. Shifts and Movements
A rightward shift in the demand curve is caused by:
A. Increase in the price of the good
B. Increase in income (for normal goods)
C. Increase in the price of complementary goods
D. Decrease in consumer preferences
Answer: BA movement along the demand curve occurs due to:
A. Change in income
B. Change in the price of substitutes
C. Change in the price of the good itself
D. Change in preferences
Answer: CWhich of the following factors can cause a shift in the demand curve?
A. Income changes
B. Prices of related goods
C. Changes in consumer tastes
D. All of the above
Answer: D
15. Market Demand
Market demand is derived by:
A. Averaging individual demand curves
B. Horizontally summing individual demand curves
C. Vertically summing individual demand curves
D. Using price elasticity of demand
Answer: BWhich method is used to derive a market demand curve graphically?
A. Vertical summation
B. Slope calculation
C. Horizontal summation
D. Substitution effect
Answer: C
16. Factors Influencing Elasticity
The demand for necessities is generally:
A. Elastic
B. Inelastic
C. Perfectly elastic
D. Perfectly inelastic
Answer: BAvailability of close substitutes makes the demand for a good:
A. More elastic
B. More inelastic
C. Perfectly inelastic
D. Constant
Answer: ALuxury goods are more likely to have:
A. Price inelastic demand
B. Price elastic demand
C. Unit-elastic demand
D. Perfectly inelastic demand
Answer: BA rectangular hyperbola-shaped demand curve represents:
A. Perfect elasticity
B. Perfect inelasticity
C. Unitary elasticity
D. Varying elasticity
Answer: C
MCQs on Advanced Concepts in Utility, Budget Line, and Elasticity
17. Utility Theory
The utility that decreases with each additional unit of consumption is called:
A. Total utility
B. Average utility
C. Marginal utility
D. Constant utility
Answer: CWhen marginal utility is negative, total utility:
A. Increases
B. Decreases
C. Remains constant
D. Becomes zero
Answer: BThe sum of marginal utilities for all units consumed is equal to:
A. Average utility
B. Total utility
C. Marginal rate of substitution
D. Budget constraint
Answer: BIn cardinal utility analysis, utility is:
A. Measured in ranks
B. Measured in monetary terms
C. Measured in arbitrary units
D. Not measurable
Answer: C
18. Indifference Curve and Substitution
An indifference curve slopes downward because:
A. More goods increase satisfaction
B. More of one good requires giving up some of another good
C. The budget line slopes downward
D. Income decreases as consumption increases
Answer: BThe marginal rate of substitution (MRS) is:
A. The slope of the budget line
B. The slope of the indifference curve
C. The ratio of marginal utilities of two goods
D. Both B and C
Answer: DDiminishing MRS is observed because:
A. Marginal utility of one good increases
B. Marginal utility of one good decreases
C. Preferences change
D. Income decreases
Answer: BWhen two goods are perfect substitutes, the indifference curve is:
A. A straight line
B. A right angle
C. Convex to the origin
D. Concave to the origin
Answer: AWhen two goods are perfect complements, the indifference curve is:
A. A straight line
B. A right angle
C. Convex to the origin
D. Downward sloping
Answer: B
19. Budget Line Adjustments
If income doubles and prices remain the same, the budget line:
A. Shifts outward
B. Shifts inward
C. Remains unchanged
D. Rotates about one intercept
Answer: AIf the price of one good decreases, the budget line:
A. Pivots outward around the other good’s intercept
B. Pivots inward around the other good’s intercept
C. Shifts parallel outward
D. Shifts parallel inward
Answer: AThe slope of the budget line represents:
A. Marginal utility of goods
B. Relative prices of goods
C. Marginal rate of substitution
D. Consumer preferences
Answer: BThe budget set includes:
A. Bundles the consumer can afford
B. Bundles the consumer cannot afford
C. All possible bundles of goods
D. Only bundles that cost less than the consumer's income
Answer: A
20. Elasticity of Demand
A demand curve that becomes steeper as the price rises indicates:
A. Increasing elasticity
B. Decreasing elasticity
C. Unchanged elasticity
D. Infinite elasticity
Answer: BElasticity at the midpoint of a linear demand curve is:
A. Less than 1
B. Equal to 1
C. Greater than 1
D. Zero
Answer: BPrice elasticity of demand for luxury goods is typically:
A. Less than 1
B. Greater than 1
C. Equal to 1
D. Zero
Answer: BA vertical demand curve shows:
A. Infinite elasticity
B. Zero elasticity
C. Unit elasticity
D. Changing elasticity
Answer: BThe responsiveness of demand to price changes is highest when:
A. Substitutes are available
B. The good is a necessity
C. The good is inferior
D. Income levels are low
Answer: A
21. Factors Influencing Elasticity
Which of the following makes demand less elastic?
A. Availability of substitutes
B. The good being a necessity
C. A long time horizon
D. High consumer income
Answer: BThe elasticity of demand for a product is affected by:
A. Availability of substitutes
B. Proportion of income spent on the good
C. The time period considered
D. All of the above
Answer: DThe demand for Giffen goods is:
A. Positively related to price
B. Negatively related to price
C. Unrelated to price
D. Highly elastic
Answer: AWhen income increases, the demand for inferior goods:
A. Increases
B. Decreases
C. Remains unchanged
D. Becomes elastic
Answer: B
22. Market Demand
Market demand curves are derived by:
A. Adding individual demands horizontally
B. Adding individual demands vertically
C. Multiplying individual demands
D. Averaging individual demands
Answer: AIf the price of a good falls, market demand typically:
A. Decreases
B. Increases
C. Remains constant
D. Becomes inelastic
Answer: BA rightward shift in the market demand curve could result from:
A. A rise in consumer income (for normal goods)
B. A decrease in the price of the good
C. A fall in consumer preferences for the good
D. An increase in the price of complementary goods
Answer: A
MCQs on Advanced Demand Concepts, Elasticity, and Market Behavior
23. Price Elasticity of Demand
If price elasticity of demand is greater than 1, the demand is:
A. Inelastic
B. Elastic
C. Perfectly elastic
D. Unit elastic
Answer: BFor which type of demand curve does elasticity remain constant?
A. Linear demand curve
B. Rectangular hyperbola
C. Perfectly inelastic demand curve
D. Perfectly elastic demand curve
Answer: BWhen a product has no close substitutes, its demand tends to be:
A. Elastic
B. Perfectly elastic
C. Inelastic
D. Unit elastic
Answer: CThe demand for a good is unit elastic if:
A. Total revenue remains unchanged with price changes
B. Price increases reduce demand to zero
C. Price decreases increase total revenue
D. The percentage change in demand equals the percentage change in price
Answer: AA good with perfectly elastic demand has a price elasticity of:
A. Zero
B. One
C. Infinite
D. Negative
Answer: C
24. Substitution and Income Effects
When the price of a good falls, the substitution effect causes the consumer to:
A. Buy more of the cheaper good
B. Buy less of the cheaper good
C. Substitute it for more expensive goods
D. Stop consuming the good
Answer: AThe income effect of a price decrease for a normal good is:
A. An increase in demand for the good
B. A decrease in demand for the good
C. No change in demand
D. A shift in the demand curve
Answer: AFor inferior goods, the income effect of a price decrease is:
A. Positive
B. Negative
C. Zero
D. Unpredictable
Answer: B
25. Demand and Related Goods
The demand for complementary goods is:
A. Positively related to each other’s prices
B. Inversely related to each other’s prices
C. Unrelated to each other’s prices
D. None of the above
Answer: BSubstitutes exhibit a relationship where:
A. A rise in the price of one decreases the demand for the other
B. A rise in the price of one increases the demand for the other
C. A fall in the price of one decreases the demand for the other
D. None of the above
Answer: BA rise in the price of coffee leads to an increase in the demand for tea. This demonstrates:
A. Complementary goods
B. Substitute goods
C. Giffen goods
D. Inferior goods
Answer: BGoods that are consumed together, such as bread and butter, are:
A. Substitutes
B. Normal goods
C. Complements
D. Inferior goods
Answer: C
26. Elasticity and Total Revenue
If demand is elastic, a decrease in price will:
A. Increase total revenue
B. Decrease total revenue
C. Leave total revenue unchanged
D. Have an unpredictable effect on total revenue
Answer: AWhen demand is inelastic, a price increase will:
A. Decrease total revenue
B. Increase total revenue
C. Leave total revenue unchanged
D. Increase demand
Answer: BAt the midpoint of a linear demand curve:
A. Elasticity is greater than 1
B. Elasticity is equal to 1
C. Elasticity is less than 1
D. Elasticity is zero
Answer: B
27. Consumer Equilibrium
Consumer equilibrium occurs when:
A. MRS equals the price ratio
B. Marginal utility is maximized
C. Budget is exhausted on one good
D. The budget line and indifference curve are parallel
Answer: AA rational consumer will:
A. Choose the highest indifference curve within her budget
B. Spend all her income on the cheaper good
C. Avoid goods with diminishing utility
D. Always buy goods in equal quantities
Answer: AThe optimum consumption point is where:
A. The budget line is tangent to the highest possible indifference curve
B. The budget line intersects the indifference curve
C. MRS exceeds the price ratio
D. The budget line is vertical
Answer: A
28. Giffen Goods and Inferior Goods
A Giffen good is a type of:
A. Complementary good
B. Normal good
C. Inferior good
D. Substitute good
Answer: CFor a Giffen good, the demand curve:
A. Slopes upward
B. Slopes downward
C. Is perfectly elastic
D. Is vertical
Answer: AInferior goods differ from Giffen goods because:
A. Giffen goods always have downward-sloping demand curves
B. Inferior goods do not violate the law of demand
C. Giffen goods are substitutes
D. Inferior goods are luxury items
Answer: B
29. Shifts and Movements
A movement along the demand curve reflects:
A. A change in quantity demanded due to a price change
B. A change in consumer preferences
C. A change in income
D. A change in the price of substitutes
Answer: AA leftward shift in the demand curve occurs when:
A. Income increases for normal goods
B. Preferences for the good decrease
C. Price of the good decreases
D. Population increases
Answer: BIf the price of a complementary good decreases, the demand curve for the related good:
A. Shifts leftward
B. Shifts rightward
C. Remains unchanged
D. Becomes vertical
Answer: B
30. Elasticity in Different Scenarios
- Elasticity of demand for necessities is typically:
A. Greater than 1
B. Less than 1
C. Equal to 1
D. Infinite
Answer: B
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