The role of consumers in the economy

Consumer sovereignty is best defined as:

• The individual right to decide how to best use resources in the production process.

• The right to sell factors of production.

• The right to acquire and operate businesses.

• The power of consumers to determine how to satisfy their wants.

Answer explanation

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What is the relationship between income (Y), consumption (C) and savings (S)?

• Income equals consumption minus savings.

• S = Y – C

• MPC = 🔼C/🔼Y

• Income equals savings minus consumption.

Answer explanation

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What is meant by the term marginal propensity to consume?

• The proportion of an individual’s income that is consumed.

• When income equals consumption.

• The proportion of an individual’s income that is saved.

• The proportion of an individual’s additional income that is consumed.

Answer explanation

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Referring to the following graph, what is the value of consumption (C) when income (Y) is 200?

• 125

• 122.5

• 164

• 160

Answer explanation

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Why are savings considered important for an economy?

• Savings can be used for investment through the financial sector.

• It is an injection into the circular flow of income.

• It is a leakage from the circular flow of income.

• It is the amount left over once consumption is subtracted from the amount of disposable income.

Answer explanation

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Referring to the table, what is the marginal propensity to save?

• 0.53

• 0.46

• 0.13

• 0.86

Answer explanation

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Which of the following statements about the life-cycle theory of consumption is correct?

• There is a positive relationship between age and consumption.

• High income earners have a higher average propensity to consume.

• Individuals tend to maintain their consumption levels over time.

• Retirees have a higher average propensity to save.

Answer explanation

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Which of the following has the largest influence on consumer choice?

• Income and prices

• Income and prices of substitute goods

• Prices of complementary and substitute goods

• Advertising and prices

Answer explanation

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Which of the following most accurately describes the relationship between price and consumer demand?

• Consumer demand does not have a relationship with price.

• Consumer demand usually has a positive relationship with price.

• Consumer demand usually has an inverse relationship with price.

• Consumer demand increases proportionately with price.

Answer explanation

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Which of the following are substitute goods?

• Chicken and lamb

• Printer and ink cartridges

• Houses and windows

• Knives and forks

Answer explanation

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