Deck 2: Indifference Curve Analysis and Consumer Theory

Question 1

Hicks Allen indifference theory is based on

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

Answer 1

weak ordering

Question 2

Income consumption curve of an inferior commodity is

A)positively sloped
B)backward bending
C)downward slopping straight line
D)showing constant income effect

Answer 2

backward bending

Question 3

In case of a convex indifference curve

A)mrs xy is constant
B)mrs xy is increasing
C)mrs xy is negligible
D)mrs xy is diminishing

Answer 3

mrs xy is diminishing

Question 4

'Higher the indifference curve higher will be level of satisfaction'. The statement is

A)always true
B)always false
C)sometimes true and sometimes false
D)true only if price effect is positive

Question 5

As per indifference curve analysis, consumer always try to reach

A)higher indifference
B)lower indifference curve
C)middle indifference curve
D)lower income price line

Question 6

Which method is used by Hicks to eliminate the income effect when price of a product is changed

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

Question 7

The basic doctrine of consumers' surplus is based on

A)indifference curve analysis
B)revealed preference theory
C)law of substitution
D)law of diminishing marginal utility

Question 8

According to Marshall, The law of diminishing marginal utility

A)applies on money in the manner in which it applies on commodity
B)do not applies on money except bank money
C)does not applies on bank money but applies on cash
D)applies on all commodities except money

Question 9

An indifference curve represent

A)four commodities
B)less than two commodities
C)only two commodities
D)only one commodity

Question 10

Indifference curve is always

A)concave to the origin
B)convex to the origin
C)l shaped
D)a straight line

Question 11

Engel curve for giffen good is

A)positively sloped
B)negatively sloped
C)horizontal straight line
D)vertical straight line

Question 12

Marginal utility is

A)always zero
B)increases at a diminishing rate
C)the utility derived from last unit
D)all the above

Question 13

Total utility is

A)the sum total of marginal utilities
B)entire utility derived from whole consumption
C)increases at a diminishing rate
D)all the above

Question 14

When Total utility is increasing at an decreasing rate, marginal utility is

A)constant
B)negative
C)increasing
D)decreasing

Question 15

Other things being equal a decrease in demand can be caused by

A)a fall in price of the commodity
B)a fall in income of the consumer
C)a rise in price of the substitute
D)none of these

Question 16

When price of a product falls, more of it is purchased because of

A)the substitution effect
B)the income effect
C)neither substitution effect nor income effect
D)both the substitution and income effects

Question 17

"Utility or satisfaction is a subjective concept; therefore it could only be ranked". The statement supports

A)cardinal utility theorist
B)ordinal utility theorist
C)behavioral theorist of the firm
D)none of the above

Question 18

Ordinal utility analysis is otherwise known as

A)gossens second law
B)cardinality approach
C)indifference curve analysis
D)rationality approach

Question 19

Ordinal utility analysis Was developed by

A)j.r.hicks & r.j.d. allen
B)samualson
C)marshall and jevons
D)slutsky

Question 20

Total utility curve

A)always rises
B)first falls then rises
C)always falls
D)first rises and then falls after reaching its maximum

Question 21

At saturation point MU of a commodity is

A)positive
B)negative
C)zero
D)increasing

Question 22

A consumer reaches equilibrium when

A)marginal utility is equal to price
B)marginal utility greater than price
C)marginal utility less than price
D)total utility is equal to price

Question 23

Marshalian cardinal utility analysis assumes

A)marginal utility of money is zero
B)marginal utility of money is decreasing
C)marginal utility of money is increasing
D)marginal utility of money is constant

Question 24

When individuals income falls (everything remain the same) his demand for a normal good

A)rises
B)falls
C)remains the same
D)negative