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# Test: Theory Of Consumer Behaviour- 1

## 30 Questions MCQ Test Business Economics for CA Foundation | Test: Theory Of Consumer Behaviour- 1

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QUESTION: 1

### In Case of a right angled indifference curve the goods are:

Solution:

The marginal rate of substitution between perfect substitutes is likewise constant. An example of a utility function that is associated with indifference curves like these would be . If two goods are perfect complements then the indifference curves will be L-shaped.

QUESTION: 2

### When TU is maximum then MU is?

Solution:

Total utility is maximum when marginal utility is zero.

It is based in the law of diminishing marginal utility which says 'as more and more units of a good are consumed, MU i.e level of satisfaction derived from each successive unit goes on falling because desire for that commodity tend to fall.

QUESTION: 3

### A budget constraints line is a result of:

Solution:

A budget line is defined as the purchasable combinations of two goods, given the prices of each good and consumer's income. Thus the budget constraint describes the different amount of two commodities that a consumer can afford.

QUESTION: 4

Cardinal approach is related to:

Solution:

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers, such as 1,2,3, and so on. In the given options the equal marginal utility is the only one in which the utility can be measured so it follows Cardinal utility approach while in the case of the other options it is ordinal approach

QUESTION: 5

________shows various combinations of two products that give same amount of satisfaction:

Solution:

An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has no preference for either combination of goods because both goods provide the same level of utility.

QUESTION: 6

Consumer Surplus is based on which concept?

Solution:

Consumer surplus is an economic measure of consumer benefit. It is calculated by analyzing the difference between what consumers are willing and able to pay for a good or service relative to its market price, or what they actually do spend on the good or service. A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price.

QUESTION: 7

The slope of I.C curve is always:

Solution:

Slope of i c curve is downward. this is because when a consumer consumes more of a commodity X then he has sacrifice with good Y.

QUESTION: 8

The satisfaction which a consumer derives in the consumption of a commodity is equal to Rs. 320. The price of that commodity is Rs. 180. What will be his consumer surplus?

Solution:

Because consumer surplus = satisfaction derived - satisfaction amt paid = 320 - 180 = 140

QUESTION: 9

Marginal utility is a ______ Concept

Solution:

Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be measured numerically. ... Cardinal utility, is based on marginal utility analysis. As against this, the concept of ordinal utility is based on indifference curve analysis.

QUESTION: 10

If total utility of a commodity is 5 and marginal utility is 1, a person consumes 3 units. What is the consumer surplus?

Solution:

Total utility - (person consumes × marginal utility) = consumer surplus

so        5- (3×1) = 2

QUESTION: 11

Indifference curves are convex to the origin because they are based on:

Solution:

Indifference Curves are Convex to the Origin: This is an important property of indifference curves. They are convex to the origin. As the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes as X for Y along an indifference curve.

QUESTION: 12

An indifference curve is always:

Solution:

The negative slope of the indifference curve reflects the assumption of the monotonicity of consumer's preferences, which generates monotonically increasing utility functions, and the assumption of non-satiation (marginal utility for all goods is always positive); an upward sloping indifference curve would imply that a Convex to the origin.

QUESTION: 13

At equilibrium, the slope of the indifference curve is:

Solution:
QUESTION: 14

When indifference curve is L – shaped then two goods will be _____

Solution:

An indifference curve is the curve at every point of which the utility would remain same. The indifference curve of perfect complementary goods is 'L' shaped. ... This is because the utility of Left shoe would be zero without a Right shoe and vice versa.

QUESTION: 15

Marginal utility approach was given by:

Solution:
QUESTION: 16

When marginal utility from the consumption of a commodity is zero, then the:

Solution:

When marginal utility is zerothen total utility is maximum because any further consumption of that commodity will lead to negative marginal utility and therefore total utility will tend to decrease

QUESTION: 17

Indifference curves between income and leisure for an individual are generally:

Solution:

Indifference maps between income and leisure is have all the usual properties o/indifference curves. They slope downward to the right, are convex to the origin and do not intersect. They are positively sloped straight lines. Each indifference curve represents various alternative combinations of income and leisure which provide equal level of satisfaction to the individual and the farther away an indifference curve is from the origin, the higher the level of satisfaction it represents for the individual.

The slope of the indifference curve measuring marginal rate of substitution between leisure and income (MRSLM) shows the tradeoff between income and leisure. This trade-off means how much income the individual is willing to accept for one hour sacrifice of leisure time.

QUESTION: 18

When Marginal Rate of Substitution is increasing, the shape of Indifference curve:

Solution:

MRS is increasing means MU is increasing and price is decreasing. If we draw this on graph we will get the shape as concave.

QUESTION: 19

Which economist said that money is the measuring rod of utility?

Solution:

Some economists are of the opinion that utility can be measured in cardinal units. For exam­ple, Sir Alfred Marshall (1842-1924), the noted neoclassical economist, said that utility can be measured cardinally in terms of money. Money is the measuring rod of utility.

QUESTION: 20

Total utility is maximum when:

Solution:

Total utility is maximum when Marginal utility is zero. It is based in the law of diminishing marginal utility which says 'as more and more units of a good are consumed, MU i.e level of satisfaction derived from each successive unit goes on falling because desire for that commodity tend to fall.

QUESTION: 21

The convexity of indifference curve is due to

Solution:

As the slope of indifference curve. ... As one moves down a (standardly convex) indifference curve, the marginal rate of substitution decreases (as measured by the absolute value of the slope of the indifference curve, which decreases). This is known as the law of diminishing marginal rate of substitution.

QUESTION: 22

From which of the following, the concept of consumer’s surplus has been derived?

Solution:

Because consumer surplus is the difference between what consumer is ready to pay and what he actually pays

QUESTION: 23

The law of equi marginal utility considers price of money as:

Solution:

The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spend on each good is equal. In other words, consumer is in equilibrium position when marginal utility of money expenditure on each goods is the same.

QUESTION: 24

Indifference curves never intersect each other due to:

Solution:

The indifference curves cannot intersect each other. It is because at the point of tangency, the higher curve will give as much as of the two commodities as is given by the lower indifference curve. This is absurd and impossible.

QUESTION: 25

Marginal utility curve of a consumer is also his:

Solution:

As the marginal utility of a consumer increases he demands more of a commodity. Therefore, the marginal utility curve derives its shape from demand curve.

QUESTION: 26

Marshallian utility analysis is known as ________.

Solution:

Marshall's cardinal utility analysis is based upon the hypothesis of independent utilities. This means that the utility which the consumer derives from any commodity is a function of the quantity of that commodity and of that commodity alone.

QUESTION: 27

The difference between what a consumer is ready to pay and what he actually pays is:

Solution:

Because consumer surplus is the difference between what consumer is ready to pay and what he actually pays

QUESTION: 28

Indifference curves are

Solution:

They are convex to the origin. As the consumer substitutes commodity X for commodity Y, the marginal rate of substitution diminishes as X for Y along an indifference curve.

QUESTION: 29

When total utility increase at a diminishing rate, marginal utility is

Solution:
QUESTION: 30

A book “The Nature and significance of Economic Science” is written by:

Solution: