Theory of Consumer Behaviour. - One Line Questions

1. What is a Giffen good? — An inferior good for which the demand increases as price increases.
2. What does an upward-sloping demand curve typically indicate? — A Giffen good.
3. If the income elasticity of demand for a good is negative, the good is: — An inferior good.
4. The indifference map consists of: — Multiple indifference curves.
5. The budget line represents: — All combinations of two goods that a consumer can afford with a given income and prices.
6. Samuelson's revealed preference theory provides a foundation for ordinal utility by: — Deriving indifference curves from observed consumer choices.
7. The shape of the indifference curve reflects the consumer's willingness to trade one good for another while maintaining the same level of satisfaction. This is captured by the: — Marginal Rate of Substitution (MRS).
8. Which approach assumes that consumers make choices to maximize their utility subject to their budget constraints? — All of the above
9. The indifference curve approach is also known as the: — Ordinal Utility Approach
10. The 'law of demand' is based on the assumption of: — Ceteris paribus (all other factors remaining constant).
11. The income consumption curve (ICC) shows how consumption of goods changes with: — Changes in income.
12. If two indifference curves intersect, it violates the assumption of: — Transitivity.
13. For a normal good, the Engel curve is: — Upward sloping.
14. If a good is a normal good, its demand curve is: — Downward sloping.
15. For an inferior good, the demand curve is typically: — Downward sloping.
16. A perfectly inelastic demand curve is: — Vertical.
17. A perfectly elastic demand curve is: — Horizontal.
18. Which of the following best describes the assumption of 'transitivity' in consumer behavior? — If a consumer prefers A to B and B to C, then they must prefer A to C.
19. Hicks' decomposition of the price effect divides it into: — Income and substitution effects.
20. The change in the consumption of a good due to a change in its relative price, while real income is kept constant, is known as the: — Substitution Effect
21. The change in the consumption of a good due to a change in the real income of the consumer, resulting from a price change, is known as the: — Income Effect
22. The total effect of a price change is the sum of the: — Income effect and substitution effect.
23. Which of the following is NOT a property of indifference curves? — Indifference curves can intersect each other.
24. What happens to the budget line if the income of the consumer increases, while prices of goods remain constant? — It shifts outwards parallelly.
25. The concept of revealed preference theory was introduced by: — Paul Samuelson
26. Which economic concept states that as a consumer consumes more and more units of a commodity, the marginal utility derived from each successive unit decreases? — Law of Diminishing Marginal Utility
27. For a luxury good, the income elasticity of demand is: — Greater than 1
28. For a necessity good, the income elasticity of demand is: — Less than 1
29. According to Slutsky's method of decomposing the price effect, the consumer is compensated for the price change by adjusting their income such that they can still afford the original bundle. This compensation is: — More than what Hicks' method would give.
30. The concept of consumer behavior explains how individuals make purchasing decisions to maximize their satisfaction given their limited resources. This is a core tenet of: — Microeconomics.
31. What is the slope of the budget line called? — Price Ratio
32. Which condition must hold for a consumer to be in equilibrium according to the cardinal utility approach? — MUx / Px = MUy / Py = ... = MUn / Pn
33. The condition for consumer's equilibrium in the ordinal approach is: — MRSxy = Px / Py
34. For a normal good, the income effect is: — Positive
35. The Strong Axiom of Revealed Preference (SARP) is a more stringent condition than WARP because it considers: — Indirect choices as well.
36. For an inferior good, the income effect is: — Negative
37. The 'income effect' for an inferior good when its price falls is: — Positive, leading to an increase in demand.
38. The slope of the price consumption curve (PCC) for a normal good is: — Positive.
39. The concept of 'consumer surplus' is derived from the difference between: — Price paid and the maximum price the consumer is willing to pay.
40. What does the slope of an indifference curve represent? — Marginal Rate of Substitution
41. The point where the demand curve intersects the price axis represents a price at which: — Quantity demanded is zero.
42. If the price of good X decreases while the income and price of good Y remain constant, the budget line will: — Pivot outwards on the Y-axis intercept.
43. Consumer's equilibrium is achieved when: — Both A and C are correct.
44. The Marginal Rate of Substitution (MRS) between two goods X and Y tends to diminish as a consumer moves down along an indifference curve because: — The consumer is willing to give up less of good Y to obtain an additional unit of good X.
45. The 'substitution effect' always leads to a decrease in the quantity demanded of a good whose price has fallen because: — The good becomes relatively cheaper and consumers substitute towards it.
46. Engel curves show the relationship between: — The income of a consumer and the quantity demanded of a good.
47. The Weak Axiom of Revealed Preference (WARP) states that if bundle A is revealed to be preferred to bundle B, then bundle B cannot be revealed to be preferred to bundle A. — True
48. What is the fundamental assumption of the ordinal approach to consumer behavior regarding utility? — Utility is comparable and rankings are possible.
49. The point where the demand curve intersects the quantity axis represents a quantity demanded of zero at: — Infinite price.
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