Chapter 4.1 Quiz

It is the study of how people decide to spend their money based on their individual preferences and budget constraints.

• consumer theory

• supplier theory

• Investor theory

• consumer sovereignty

Which of the following are NOT the KEY TAKEAWAYS of Consumer Theory?

• Consumer theory is the study of how people decide to spend their money based on their individual preferences and budget constraints.

• Building a better understanding of individuals' tastes and incomes is important because these factors impact the shape of the overall economy.

• Consumer theory is not flawless, though, as it based on a number of assumptions about human behavior.

• Use different financial instruments to earn a rate of return to accomplish financial goals and objectives.

It is an individual who are said to make calculated decisions when shopping, purchasing products that bring them the greatest benefit, otherwise known as maximum utility in economic terms.

• nonsatiation

• decreased marginal utility

• increased marginal utility

• utility maximization

Decreasing marginal utility is the consumers lose satisfaction in a product the more they consume it

• True

• False

It is the power to satisfy but is a subjective notion and a specific product will vary from one person to another.

• Utility

• Needs

• Preferences

• Wants

It is the extra utility that a consumer derives from an additional unit of a good or service.

• marginal utility

• increased utility

• total utility

• decrease utility

It is usually defined as a quantifiable summation of satisfaction or happiness obtained from consuming multiple units of a particular good or services.

• marginal utility

• increased utility

• total utility

• decrease utility

While consumer wants and needs are unlimited, this is subject to their capacity to pay for these goods and services. The budget and income are used interchangeably.

• Consumers are rational.

• Preferences exist over various goods and services in the market, using the concept of marginal utilities.

• Consumer are subject to budget constraints.

• Prices exist due to unlimited wants and the scarcity of resources.

It is the measure of the unit of satisfaction.

• util

• satis

• happiness

• consumption

Explain the concept of indifference curve and its significance in consumer theory.

• The significance of indifference curve is limited to understanding the production possibilities of a firm, not consumer preferences.

• The indifference curve is not relevant in consumer theory as it only represents the consumer's budget constraints.

• The indifference curve represents the different combinations of two goods that provide the same level of satisfaction to a consumer. It helps in understanding consumer preferences and the concept of marginal rate of substitution.

• The indifference curve shows the different combinations of goods that provide decreasing satisfaction to a consumer.