EIA2007 Consumer Behaviour

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

• completeness.

• transitivity.

• nonsatiation (more is preferred to less).

• rationality.

) If a consumer prefers basket A to basket B and basket B to basket C, then the consumer also prefers A to C.  This assumption is called:

• completeness.

• transitivity.

• nonsatiation.

• rationality.

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.

The slope of an indifference curve reveals:

• that preferences are complete.

• the marginal rate of substitution of one good for another good.

• the ratio of market prices.

• that preferences are transitive.

Two goods for which the marginal rate of substitution is zero or infinite are:

• perfect substitutes.

• perfect complements.

• goods considered "bads."

• substitutes and complements at the same time.

This indifference map shows that this consumer:

• prefers cars with more space and less acceleration.

• obtains the same additional utility from more space or more acceleration.

• obtains more utility only when acceleration increases, even if space remains about the same.

• takes notice of the fact that, as acceleration increases, space decreases

A utility function describing by how much one market basket is preferred to another is called:

• a cardinal utility function.

• an ordinal utility function.

• either an ordinal or a cardinal function.  Both types of functions use this ranking.

• neither an ordinal nor a cardinal function.  Neither type uses this ranking

A budget line shows the combinations of:

• prices that place a limit on the purchase and consumption of two goods.

• two goods that can be purchased with a given income, and given the prices of the two goods.

• two goods that can be purchase at various levels of income.

• the quantities of two goods that can be purchased at various prices.

Assume that food is measured on the horizontal axis and clothing on the vertical axis.  If the price of food falls relative to that of clothing, the budget line will:

• become flatter.

• become steeper.

• shift outward.

• become steeper or flatter depending on the relationship between prices and income.

.  Theodore's budget line has changed from A to B.  Which of the following explains the change in Theodore's budget line?

• The price of food and the price of clothing increased.

• The price of food increased, and the price of clothing decreased.

• The price of food decreased, and the price of clothing increased.

• The price of food and the price of clothing decreased.