chapter 4

What does the term 'utility' mean in the context of consumer behaviour?

• The quantity of a commodity

• The price of a commodity

• The satisfaction obtained from consuming a commodity

• The demand for a commodity

What is the formula for calculating Marginal Utility (MU)?

• MU = Total Quantity / Total Utility

• MU = Change in Total Quantity / Change in Total Utility

• MU = Total Utility / Total Quantity

• MU = Change in Total Utility / Change in Total Quantity

According to the Law of Diminishing Marginal Utility, what happens to the marginal utility as consumption increases?

• It fluctuates randomly

• It remains constant

• It increases

• It decreases

What does the Law of Equi-Marginal Utility state?

• A consumer gets maximum satisfaction when he allocates his limited income to the purchase of different goods

• A consumer gets maximum satisfaction when he spends all his income on a single good

• A consumer gets maximum satisfaction when he saves his income instead of spending it

• A consumer gets maximum satisfaction when he spends his income on goods with the highest prices

What does an indifference curve represent?

• The production possibilities of two goods in an economy

• The price changes of two goods over time

• The demand for two goods in the market

• All the possible combinations of two goods which will give the same level of satisfaction

What is the Income Effect in consumer behaviour?

• The effect on the purchases of the consumer caused by changes in both income and prices of goods

• The effect on the purchases of the consumer caused by changes in preferences for goods

• The effect on the purchases of the consumer caused by changes in income with prices of goods remaining constant

• The effect on the purchases of the consumer caused by changes in prices of goods with income remaining constant

What is the Price Effect in consumer behaviour?

• Explains what happens to the consumers’ equilibrium position when the price of one good changes while the price of another good and other factors remains constant

• Explains what happens to the consumers’ equilibrium position when the income of the consumer changes

• Explains what happens to the consumers’ equilibrium position when the preferences of the consumer change

• Explains what happens to the consumers’ equilibrium position when the prices of all goods change

What is Consumer Surplus?

• The excess of what a consumer is willing to pay and what the market price is

• The excess of what a consumer is willing to pay and what he/she actually pays

• The excess of what a consumer is willing to pay and what the production cost is

• The excess of what a consumer is willing to pay and what the government subsidy is

What happens to the consumer equilibrium when the price of one good rises and the price of another good falls?

• Price Effect

• Income Effect

• Utility Effect

• Substitution Effect

What does the Law of Diminishing Marginal Utility state?

• The additional benefit which a person derives from a given increase of a stock of a thing remains constant with every increase in the stock that he already has

• The additional benefit which a person derives from a given increase of a stock of a thing increases with every increase in the stock that he already has

• The additional benefit which a person derives from a given increase of a stock of a thing diminishes with every increase in the stock that he already has

• The additional benefit which a person derives from a given increase of a stock of a thing fluctuates randomly with every increase in the stock that he already has