Deck 1: Consumer Theory and Utility

Question 1

Which of the following is called gossans first law

A)law of substitution
B)law of equi marginal utility
C)law of diminishing marginal utility
D)none of the above

Answer 1

law of diminishing marginal utility

Question 2

When individuals income falls (everything remain the same) his demand for an inferior good

A)rises
B)falls
C)remains the same
D)we cannot say without additional information

Answer 2

rises

Question 3

If negative income effect is greater than positive substitution effect : the product will be

A)a normal good
B)an inferior good
C)a giffen good
D)a complementary good

Answer 3

a giffen good

Question 4

Which of the following statement is FALSE with regard to marginal utility

A)marginal utility is the utility derived from last unit
B)as consumption increases marginal utility goes on diminishing
C)at saturation point marginal utility is zero
D)marginal utility increases at a diminishing range

Question 5

According to Marshall consumer surplus is:

A)total utility - marginal utility
B)total utility + marginal utility
C)total utility derived - price
D)price - marginal utility

Question 6

If both the products X & Y are normal goods

A)slopes down towards right
B)slopes up towards right
C)slopes up towards left
D)slopes down towards left

Question 7

Which of the following statement is TRUE with regard to total utility

A)total utility is the utility derived from last unit
B)total utility increases at a diminishing range
C)as consumption increases total utility goes on diminishing
D)at saturation point total utility is negative

Question 8

If negative income effect is less than positive substitution effect : the product will be

A)a normal good
B)an inferior good
C)a giffen good
D)a complementary good

Question 9

Which of the following statements is true

A)hicksian substitution effect is greater than slutsky substitution effect
B)slutsky substitution effect is greater than hicksian substitution effect
C)hicksian substitution effect is same and equal to slutsky substitution effect
D)hicksian substitution effect is the reverse of slutsky substitution effect

Question 10

According to Hicks substitution effect is

A)the movement to a higher indifference curve
B)the movement to a lower indifference curve
C)the movement along an indifference curve
D)the movement to a decreased consumption

Question 11

Strong ordering means

A)absence of indifference
B)presence of indifference
C)no difference between different combinations
D)none of the above

Question 12

In the fundamental theorem of consumption and to prove the law of demand, Samualson uses

A)compensating variation in income
B)the cost difference
C)the over compensation effect
D)substituting variation in price

Question 13

If negative income effect is greater than positive substitution effect : price effect will be

A)zero
B)negative
C)positive
D)positive and greater than one

Question 14

As per indifference curve analysis consumer equilibrium is attained when

A)slope of indifference curve is constant
B)slopes of both indifference curve and income price line are equal
C)slopes of both indifference curve and income price line are opposite
D)both income price line and indifference curve are parallel.

Question 15

The slope of a budget line is

A)the satisfaction level of both the commodities
B)the income level of the consumer
C)the price ratio of both the commodities under consideration
D)price level of a country

Question 16

At the point of tangency the slope of indifference curve is

A)differ from point to point
B)is equal on the other side of the mid point
C)is the same
D)is increasing

Question 17

The slope of a budget line throughout its length is

A)the satisfaction level of both the commodities
B)the income level of the consumer
C)the price ratio of both the commodities under consideration
D)price level of a country

Question 18

The income effect for a commodity is

A)is always positive
B)is always negative
C)depends upon price effect
D)determines the nature of the commodity

Question 19

The substitution effect for a commodity is

A)is always positive
B)depends upon the nature of the commodity
C)depends upon price effect
D)sometimes negative and sometimes positive

Question 20

Price effect is

A)income effect - substitution effect
B)substitution effect - income effect
C)income effect + substitution effect
D)income effect + substitution effect- negative effects

Question 21

For a giffen good, when price falls

A)demand increases at a faster rate
B)demand decreases
C)demand remains constant
D)demand curve has a negative slope

Question 22

Inferior goods are the goods with

A)falling income effect
B)rising income effect
C)negative income effect
D)positive marshallian effects

Question 23

Indifference curves are

A)always parallel
B)may be parallel
C)may not be parallel
D)both b and c

Question 24

Revealed preference theory assumes

A)weak ordering
B)strong ordering
C)constant ordering
D)multiple ordering