Consumer Behaviour

Select from the following, the issues that consumer theory can help to resolve.

• A) How consumer allocate their incomes to the purchase of goods and services

• B) Problems involving corporate policy

• C) Problems involving public policy

• D) All of the above

The field of behavioral economics has been built around which of the following assertions?

• Consumers have preferences among the various goods and services available to them.

• Consumers face budget constraints which put limits on what they can buy.

• Consumers may not be as rational and well-informed as economists make them out to be.

• Consumers ignore the information they obtain and tend to make more irrational than rational

The theory of consumer behavior assumes that consumers can compare and rank all possible market baskets. This assumption is called:

• nonsatiation (more is preferred to less).

• completeness.

• rationality.

• transitivity.

The assumption that preferences are complete:

• means that a consumer will spend her entire income.

• is unnecessary, as long as transitivity is assumed.

• recognizes that there may be pairs of market baskets that cannot be compared.

• means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them.

Refer to Figure above. On the assumption that the consumer prefers more to less, which of the following baskets are preferred to market basket A?

• B and D

• B and E

• Only B

• Only E

A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:

• a budget line.

• an isoquant.

• an indifference curve.

• a demand curve.

The shape of an indifference curve like the one in this figure:

• represents more realistically the preferences of a rational consumer.

• implies that consumer preferences are not complete.

• violates the assumption that more is preferred to less.

• has market baskets that represent different levels of utility.

Which of the following will result in a decrease in a consumer's purchasing power?

• A. A decrease in the consumer's income

• B. An increase in the price of the good on the vertical axis

• C. An increase in the price of the good on the horizontal axis

• D. all of the above