Question 1

Hicks Allen indifference theory is based on&#10;A)weak ordering&#10;B)strong ordering&#10;C)constant ordering&#10;D)multiple ordering

Accepted Answer

Hicks-Allen indifference theory is based on weak ordering, which means that given any two bundles of goods, a consumer can rank them in terms of preference (preferring one bundle, preferring the other, or being indifferent between the two), but this ranking does not necessarily have to follow strong or strict preferences for one bundle over another in all cases.

Question 2

Income consumption curve of an inferior commodity is&#10;A)positively sloped&#10;B)backward bending&#10;C)downward slopping straight line&#10;D)showing constant income effect

Accepted Answer

The income consumption curve of an inferior commodity is backward bending because as income increases, the consumption of the inferior good initially increases but after a certain point, it decreases, leading to a backward bend in the curve.

Question 3

In case of a convex indifference curve&#10;A)mrs xy is constant&#10;B)mrs xy is increasing&#10;C)mrs xy is negligible&#10;D)mrs xy is diminishing

Accepted Answer

In a convex indifference curve, the marginal rate of substitution (MRS) is diminishing, meaning as you consume more of one good, you are willing to give up less of the other good to maintain the same level of utility.

Question 4

'Higher the indifference curve higher will be level of satisfaction'. The statement is&#10;A)always true&#10;B)always false&#10;C)sometimes true and sometimes false&#10;D)true only if price effect is positive

Accepted Answer

Indifference curves represent combinations of goods that provide a consumer with the same level of satisfaction. Higher indifference curves represent higher levels of satisfaction because they consist of combinations of goods that a consumer prefers over those on lower indifference curves.

Question 5

As per indifference curve analysis, consumer always try to reach&#10;A)higher indifference&#10;B)lower indifference curve&#10;C)middle indifference curve&#10;D)lower income price line

Accepted Answer

Higher indifference curves represent higher levels of satisfaction or utility for the consumer, so consumers will always try to reach a higher indifference curve given their budget constraints.

Question 6

Which method is used by Hicks to eliminate the income effect when price of a product is changed&#10;A)compensating variation in income&#10;B)the cost difference&#10;C)the over compensation effect&#10;D)substituting variation in price

Accepted Answer

Hicks' method to eliminate the income effect when the price of a product changes is through compensating variation in income. This approach adjusts the consumer's income to keep their utility level constant despite the price change, isolating the substitution effect.

Question 7

The basic doctrine of consumers' surplus is based on&#10;A)indifference curve analysis&#10;B)revealed preference theory&#10;C)law of substitution&#10;D)law of diminishing marginal utility

Accepted Answer

The basic doctrine of consumers' surplus is based on the law of diminishing marginal utility, which posits that as a consumer consumes more of a good, the additional satisfaction (marginal utility) derived from each additional unit decreases. This concept is foundational to understanding consumers' surplus, which is the difference between what consumers are willing to pay for a good or service versus what they actually pay.

Question 8

According to Marshall, The law of diminishing marginal utility&#10;A)applies on money in the manner in which it applies on commodity&#10;B)do not applies on money except bank money&#10;C)does not applies on bank money but applies on cash&#10;D)applies on all commodities except money

Accepted Answer

The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction from consuming an extra unit of the good decreases. Marshall argued that this law applies to all commodities except money, as money is a medium of exchange and its utility is in its spending power, which does not diminish in the same way as the utility of consumable goods.

Question 9

An indifference curve represent&#10;A)four commodities&#10;B)less than two commodities&#10;C)only two commodities&#10;D)only one commodity

Accepted Answer

An indifference curve represents combinations of two commodities that give a consumer equal satisfaction, hence it involves only two commodities.

Question 10

Indifference curve is always&#10;A)concave to the origin&#10;B)convex to the origin&#10;C)l shaped&#10;D)a straight line

Accepted Answer

Indifference curves are typically convex to the origin because they reflect the principle of diminishing marginal rate of substitution. This means as a consumer substitutes one good for another, the amount of the second good needed to maintain the same level of utility increases.

Question 11

Engel curve for giffen good is&#10;A)positively sloped&#10;B)negatively sloped&#10;C)horizontal straight line&#10;D)vertical straight line

Accepted Answer

The answer of Engel curve for giffen good is&#10;A)positively sloped&#10;B)negatively...

Question 12

Marginal utility is&#10;A)always zero&#10;B)increases at a diminishing rate&#10;C)the utility derived from last unit&#10;D)all the above

Accepted Answer

The answer of Marginal utility is&#10;A)always zero&#10;B)increases at a diminishing...

Question 13

Total utility is&#10;A)the sum total of marginal utilities&#10;B)entire utility derived from whole consumption&#10;C)increases at a diminishing rate&#10;D)all the above

Accepted Answer

The answer of Total utility is&#10;A)the sum total of marginal...

Question 14

When Total utility is increasing at an decreasing rate, marginal utility is&#10;A)constant&#10;B)negative&#10;C)increasing&#10;D)decreasing

Accepted Answer

The answer of When Total utility is increasing at an...

Question 15

Other things being equal a decrease in demand can be caused by&#10;A)a fall in price of the commodity&#10;B)a fall in income of the consumer&#10;C)a rise in price of the substitute&#10;D)none of these

Accepted Answer

The answer of Other things being equal a decrease in...

Question 16

When price of a product falls, more of it is purchased because of&#10;A)the substitution effect&#10;B)the income effect&#10;C)neither substitution effect nor income effect&#10;D)both the substitution and income effects

Accepted Answer

The answer of When price of a product falls, more...

Question 17

&#34;Utility or satisfaction is a subjective concept; therefore it could only be ranked&#34;. The statement supports&#10;A)cardinal utility theorist&#10;B)ordinal utility theorist&#10;C)behavioral theorist of the firm&#10;D)none of the above

Accepted Answer

The answer of &#34;Utility or satisfaction is a subjective concept;...

Question 18

Ordinal utility analysis is otherwise known as&#10;A)gossens second law&#10;B)cardinality approach&#10;C)indifference curve analysis&#10;D)rationality approach

Accepted Answer

The answer of Ordinal utility analysis is otherwise known as&#10;A)gossens...

Question 19

Ordinal utility analysis Was developed by&#10;A)j.r.hicks & r.j.d. allen&#10;B)samualson&#10;C)marshall and jevons&#10;D)slutsky

Accepted Answer

The answer of Ordinal utility analysis Was developed by&#10;A)j.r.hicks &...

Question 20

Total utility curve&#10;A)always rises&#10;B)first falls then rises&#10;C)always falls&#10;D)first rises and then falls after reaching its maximum

Accepted Answer

The answer of Total utility curve&#10;A)always rises&#10;B)first falls then rises&#10;C)always...

Question 21

At saturation point MU of a commodity is&#10;A)positive&#10;B)negative&#10;C)zero&#10;D)increasing

Accepted Answer

The answer of At saturation point MU of a commodity...

Question 22

A consumer reaches equilibrium when&#10;A)marginal utility is equal to price&#10;B)marginal utility greater than price&#10;C)marginal utility less than price&#10;D)total utility is equal to price

Accepted Answer

The answer of A consumer reaches equilibrium when&#10;A)marginal utility is...

Question 23

Marshalian cardinal utility analysis assumes&#10;A)marginal utility of money is zero&#10;B)marginal utility of money is decreasing&#10;C)marginal utility of money is increasing&#10;D)marginal utility of money is constant

Accepted Answer

The answer of Marshalian cardinal utility analysis assumes&#10;A)marginal utility of...

Question 24

When individuals income falls (everything remain the same) his demand for a normal good&#10;A)rises&#10;B)falls&#10;C)remains the same&#10;D)negative

Accepted Answer

The answer of When individuals income falls (everything remain the...

Deck 2: Indifference Curve Analysis and Consumer Theory