Indifference Curves and Budget Lines Quiz

What does an indifference curve represent?

• The maximum income of a consumer

• Combinations of goods providing the same satisfaction

• The cost of production

• The budget constraint

What is the slope of the indifference curve called?

• Marginal utility

• Marginal rate of substitution

• Price ratio

• Income elasticity

Why are indifference curves downward sloping?

• Consumers prefer fewer goods.

• As one good decreases, more of another is needed to maintain satisfaction

• Goods are not substitutable.

• Total utility increases with fewer goods.

What does the slope of a budget line represent?

• Total utility

• Price of one good relative to another

• Marginal utility

• Income level

What is the condition for consumer equilibrium on an indifference curve?

• Marginal rate of substitution equals the price ratio

• Total utility is maximized

• Income is spent entirely on one good

• Marginal utility equals zero

What happens to the budget line when income increases?

• It shifts outward parallelly

• It rotates inward

• It stays the same

• It shifts inward parallelly

If the price of one good decreases, what happens to the budget line?

• It shifts outward parallelly

• It rotates outward on the axis of the cheaper good

• It rotates inward on the axis of the cheaper good

• It remains unchanged

Indifference curves are convex because of:

• Increasing marginal rate of substitution

• Diminishing marginal rate of substitution

• Decreasing total utility

• Constant marginal utility

What does a higher indifference curve represent?

• Greater satisfaction

• Lower satisfaction

• No change in satisfaction

• Reduced income

What does the budget line show?

• All possible combinations of two goods a consumer can afford

• All combinations providing equal satisfaction

• Only optimal consumption points

• Total utility of goods consumed