UGC NET - Consumer behavior: utility and indifference curve analysis One Line Questions & Answers

1. The consumer's equilibrium is achieved at the point where the indifference curve is: — Tangent to the budget line

2. The total utility derived from consuming a good is the sum of: — All marginal utilities.

3. What does the Law of Diminishing Marginal Utility state? — As consumption of a good increases, marginal utility decreases.

4. The concept of ordinal utility implies that consumers can: — Rank their preferences but not quantify them precisely.

5. The indifference curve analysis is superior to the cardinal utility approach because it: — Assumes ordinal preferences.

6. The indifference curve approach allows for the analysis of consumer behavior without: — Measuring marginal utility numerically.

7. If MUx/Px > MUy/Py, a rational consumer should: — Buy more of good X and less of good Y.

8. The indifference curve approach is also known as the: — Ordinal Utility Approach

9. The point where the budget line is tangent to the highest possible indifference curve represents: — Consumer Equilibrium

10. The income consumption curve (ICC) for a normal good is typically: — Upward sloping

11. The equimarginal principle states that a consumer maximizes utility when the marginal utility per dollar spent is: — Equal for all goods

12. The total effect of a price change for a good is the sum of the: — Substitution and income effects.

13. A price consumption curve (PCC) shows the optimal consumption bundles as the price of one good changes, while: — Income and the other good's price remain constant.

14. Which of the following scenarios would lead to a rightward shift of the budget line? — Increase in income

15. The indifference curves are convex to the origin due to: — Diminishing Marginal Rate of Substitution

16. Which of the following is NOT a property of indifference curves? — Indifference curves intersect each other.

17. A Giffen good is a special type of inferior good for which the income effect: — Is stronger than the substitution effect and is negative.

18. Which of the following is a limitation of the cardinal utility approach? — It assumes utility is measurable and quantifiable.

19. What happens to the Marginal Rate of Substitution (MRS) as a consumer moves down along an indifference curve? — It decreases.

20. If the prices of both goods and income change proportionally, what happens to the budget line? — It shifts inwards parallel.

21. The income effect refers to the change in consumption of a good due to a change in: — Real income, keeping prices constant.

22. Which economic concept assumes that consumers aim to maximize their satisfaction? — Consumer Equilibrium

23. The indifference curve approach assumes that consumers have: — Perfect information and rational preferences

24. The slope of the budget line represents the: — Opportunity cost of consuming one more unit of a good in terms of the other

25. Total Utility (TU) is maximized when: — Marginal Utility (MU) is zero.

26. According to utility analysis, a rational consumer will continue to consume a good as long as: — Marginal utility exceeds price.

27. The consumer surplus is the difference between the total utility a consumer derives from a good and the: — Price paid for the good.

28. The substitution effect always leads to a consumer buying: — More of a good whose price has fallen.

29. Which condition must hold for a consumer to be in equilibrium using indifference curve analysis? — MRS = Px/Py

30. If a consumer spends all their income on two goods, X and Y, and is in equilibrium, then: — MUx / Px = MUy / Py

31. For a normal good, the income effect is: — Positive

32. When the price of a normal good falls, the total effect on consumption is: — Positive, due to positive substitution and income effects.

33. For an inferior good, the income effect is: — Negative

34. If the price of a good increases, and it is a normal good, the total effect on consumption will be: — Negative, due to negative substitution and income effects.

35. A budget line shows all the combinations of two goods that a consumer can afford given their: — Income and prices of the goods

36. The consumption possibility line (budget line) shows the maximum combinations of two goods a consumer can purchase given income and: — Prices

37. The slope of an indifference curve is known as the: — Marginal Rate of Substitution (MRS)

38. The substitution effect refers to the change in consumption of a good due to a change in its: — Price, keeping real income constant.

39. At the point of consumer equilibrium, the Marginal Rate of Substitution (MRS) is equal to the: — Ratio of prices

40. If the price of a good decreases, while income and the price of the other good remain constant, the budget line will: — Rotate outwards

41. What does the income consumption curve (ICC) trace? — The effect of income changes on consumption of two goods, holding prices constant.

42. What does the Marginal Rate of Substitution (MRS) measure? — The rate at which a consumer is willing to give up one good to get more of another, maintaining the same utility.

43. What does the shape of the indifference curve imply about the trade-off between two goods? — The trade-off becomes less favorable for the good being consumed more.

44. The concept of 'utility' in economics refers to: — The satisfaction or benefit a consumer derives from a good or service.

45. In the context of indifference curves, 'transitivity' of preferences means that if a consumer prefers A to B, and B to C, then: — They prefer A to C.

46. A consumer is indifferent between two bundles of goods if: — They provide the same level of utility.

47. The income consumption curve (ICC) for an inferior good is typically: — Downward sloping

48. Which of the following is an assumption of the indifference curve analysis? — Consumers can rank their preferences.

49. An indifference curve represents combinations of two goods that yield: — The same level of utility

Consumer behavior: utility and indifference curve analysis - One Line Questions