Microeconomics - theory of consumer behaviour - cardinal and ordinal approaches, revealed preference hypothesis, Hicks revision of demand theory, modern utility, choice under risk and uncertainty - One Line Questions

1. In the context of consumer behavior, what does a Giffen good represent? — A good for which demand increases as price increases
2. According to Expected Utility Theory, if a person is risk-averse, they will prefer: — A certain outcome over a lottery with the same expected value
3. The 'modern utility' concept, in the context of choice theory, often refers to: — A framework that allows for subjective probabilities and risk aversion
4. The 'probability weighting function' in Prospect Theory suggests that people: — Overweight small probabilities and underweight large probabilities.
5. The Revealed Preference Hypothesis was proposed by: — Paul Samuelson
6. The budget line represents: — All combinations of goods that a consumer can afford given their income and prices.
7. The concept of 'reference dependence' in Prospect Theory means that people evaluate outcomes relative to: — A baseline or reference point
8. The 'certainty effect' in Prospect Theory refers to the observation that people: — Overweight the certainty of an outcome compared to probabilistic outcomes.
9. In the context of revealed preference, if a consumer chooses bundle A when bundle B was affordable, it implies: — Bundle A is revealed to be preferred to Bundle B.
10. The Indifference Curve analysis is a key component of which approach to consumer behavior? — Ordinal Approach
11. Which hypothesis aims to derive demand curves without directly using the concept of utility? — Revealed Preference Hypothesis
12. In Hicks' decomposition, the substitution effect measures the change in consumption due to: — Change in relative prices, holding real income constant
13. The 'framing effect' in decision-making refers to the phenomenon where: — Choices are influenced by how options are presented, even if the underlying options are the same.
14. A risk-neutral individual's utility function is: — Linear
15. Which of the following is a key assumption of the Cardinal Utility Approach? — Utility is measurable and quantifiable.
16. The indifference curves are typically: — Convex to the origin
17. Which of the following best describes 'Choice under Uncertainty'? — Decisions where the probabilities of different outcomes are unknown.
18. The Expected Utility Hypothesis states that a rational decision-maker chooses the option that maximizes: — Expected utility
19. The Weak Axiom of Revealed Preference (WARP) implies that: — If bundle A is chosen over B, then bundle B cannot be revealed as preferred to bundle A.
20. The indifference curve approach assumes that consumer preferences are: — Rational, complete, and transitive
21. The 'law of diminishing marginal utility' states that as a consumer consumes more units of a good, the additional satisfaction derived from each extra unit: — Decreases
22. The Marginal Rate of Substitution (MRS) tends to diminish along an indifference curve due to: — Decreasing marginal utility of the good on the horizontal axis
23. Which of the following is a critique of the Cardinal Approach to utility? — It is difficult to measure utility in quantifiable units.
24. The concept of Expected Utility Theory was pioneered by: — John von Neumann and Oskar Morgenstern
25. The shape of the utility function associated with risk aversion is: — Concave
26. A key concept in Prospect Theory is the 'value function', which is typically: — Steeper for losses than for gains
27. What does the slope of an indifference curve represent? — Marginal Rate of Substitution (MRS)
28. According to the theory of consumer choice, a consumer aims to: — Maximize their utility subject to their budget constraint.
29. Which approach to consumer behavior assigns numerical values to the satisfaction derived from consuming goods and services? — Cardinal Approach
30. The concept of 'loss aversion' in Prospect Theory means that: — People feel the pain of a loss more strongly than the pleasure of an equivalent gain.
31. What is the 'endowment effect' as described in behavioral economics? — People tend to overvalue goods they own compared to similar goods they do not own.
32. Choice under uncertainty involves situations where: — Probabilities of outcomes are unknown
33. Choice under risk involves situations where: — Probabilities of outcomes are known
34. According to the Cardinal Approach, utility is: — Quantifiable and measurable
35. Hicks' revision of demand theory, building on revealed preference, primarily aimed to: — Justify the ordinal approach without relying on utility
36. Prospect Theory suggests that people are often: — Risk-averse for gains and risk-seeking for losses
37. A person who prefers a certain outcome over a gamble with the same expected value is considered: — Risk-averse
38. John Hicks, in his revision of demand theory, decomposed the price effect into: — Substitution effect and Income effect
39. The Slutsky equation decomposes the price effect into: — Substitution effect and Income effect (based on final income)
40. Samuelson's 'Axiom of Revealed Preference' is a formalization of: — The idea that observed choices reflect preferences.
41. Hicks' revision of demand theory, using revealed preference, led to a more robust explanation of: — The Giffen paradox
42. Consumer equilibrium in the Ordinal Approach occurs at the point where: — The indifference curve is tangent to the budget line.
43. Daniel Kahneman and Amos Tversky's Prospect Theory challenged Expected Utility Theory by highlighting: — Systematic deviations from rational choice, especially under risk
44. Which of the following is NOT a typical characteristic of modern utility functions in decision theory? — They are always linear.
45. The core idea of the Revealed Preference Hypothesis is that consumer choices reveal their preferences: — By observing their behavior in the market
46. Which axiom states that if a consumer chooses bundle A over bundle B, then bundle B must not be revealed as preferred to bundle A? — Consistency (or Axiom of Revealed Preference)
47. The Strong Axiom of Revealed Preference (SARP) is a more stringent condition than WARP. It implies: — All of the above
48. Which of the following is a fundamental assumption of the Ordinal Approach to consumer behavior? — Consumers can rank their preferences between different bundles of goods.
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