Consumer's Equilibrium Quiz

What is the main objective of a consumer when buying any good or service?

• To get maximum satisfaction

• To accumulate wealth

• To spend all income

• To buy the cheapest option

What is the definition of utility in economics?

• The power of a commodity to satisfy a human want

• The total amount of money spent on goods

• The quantity of goods purchased

• The price of a commodity

What is the relationship between total utility and marginal utility?

• Total utility is maximum when marginal utility is negative

• Total utility is constant regardless of marginal utility

• Total utility decreases when marginal utility is positive

• Total utility increases as long as marginal utility is positive

What does the law of diminishing marginal utility state?

• As more units of a commodity are consumed, the marginal utility from each successive unit diminishes

• The total utility decreases with each additional unit consumed

• As more units of a commodity are consumed, the marginal utility from each successive unit diminishes

• The marginal utility remains constant regardless of the quantity consumed

In consumer's equilibrium for a single commodity, when is a consumer at equilibrium?

• When the consumer buys the most expensive option

• When the price of the commodity is lowest

• When total utility is maximum

• When marginal utility in terms of money equals the price paid for the commodity

What is an indifference curve in consumer theory?

• A curve showing all combinations of two goods that give equal satisfaction to the consumer

• A curve showing the relationship between price and quantity demanded

• A curve representing the budget constraint of the consumer

• A curve indicating the total utility derived from consuming a good

What does the slope of an indifference curve represent?

• The consumer's income level

• The total utility derived from consuming the goods

• The market price of the goods

• The marginal rate of substitution between two goods

Why are indifference curves always convex to the origin?

• Due to increasing marginal rate of substitution

• To represent decreasing total utility

• To show the relationship between price and quantity

• Due to diminishing marginal rate of substitution

What is the condition for consumer's equilibrium in indifference curve analysis?

• When the budget line is tangent to the indifference curve

• When the budget line intersects the indifference curve

• When the consumer buys the most expensive bundle

• When the consumer spends all income on one good

What is the main assumption in indifference curve analysis?

• The consumer has fixed income to spend on two goods

• The consumer has unlimited income

• The consumer's income varies with each purchase

• The consumer's preferences are constant