Consumer Theory: Master the Fundamentals of Consumer Behavior

Question 1

Which of the following characterizes a normal good?

Accepted Answer

Its demand increases as income rises.

Answer

Its demand decreases as income rises.

Answer

Its demand is unrelated to changes in income.

Answer

Its demand is inversely related to its price.

Question 2

Which of the following measures the satisfaction a consumer derives from consuming a good or service?

Accepted Answer

Utility

Answer

Demand

Answer

Elasticity

Answer

Surplus

Question 3

When is a consumer in a state of optimal consumption?

Accepted Answer

At the point where they maximize their utility on their budget line

Answer

At the point where they spend all their budget

Answer

At the point where they consume the most goods

Answer

At the point where they experience the highest marginal utility

Question 4

Which concept measures the additional satisfaction gained from consuming one more unit of a good?

Accepted Answer

Marginal utility

Answer

Total utility

Answer

Average utility

Answer

Indifference

Question 5

Consumer surplus refers to the situation when a consumer:

Accepted Answer

Is willing to pay more for a good than its actual price

Answer

Is unwilling to pay more for a good than its actual price

Answer

Pays the same amount for a good as its actual price

Answer

Buys more of a good than they initially intended

Question 6

Which graph represents the relationship between the price of a good and the quantity demanded?

Accepted Answer

Demand curve

Answer

Supply curve

Answer

Indifference curve

Answer

Utility function

Question 7

The law of diminishing marginal utility implies that:

Accepted Answer

As more units of a good are consumed, the additional satisfaction gained from each additional unit decreases.

Answer

As more units of a good are consumed, the total satisfaction gained from consuming all the units increases.

Answer

The marginal utility of a good is constant regardless of the quantity consumed.

Answer

The total utility derived from consuming a good is always positive.

Question 8

Which of the following is NOT a determinant of consumer demand?

Accepted Answer

Producer's costs of production

Answer

Consumer's tastes and preferences

Answer

Price of a related good

Answer

Consumer's expectations about future prices

Question 9

The elasticity of supply measures the:

Accepted Answer

Responsiveness of quantity supplied to a change in price

Answer

Responsiveness of quantity demanded to a change in price

Answer

Relationship between price and quantity supplied

Answer

Relationship between price and quantity demanded

Question 10

Producer surplus is:

Accepted Answer

The difference between the price producers receive and the price they are willing to accept

Answer

The difference between the price consumers pay and the price producers receive

Answer

The total revenue received by producers

Answer

The marginal revenue of the last unit produced

Question 11

The y-intercept of the budget line represents:

Accepted Answer

Consumer's income

Answer

Price of the good on the x-axis

Answer

Price of the good on the y-axis

Answer

Slope of the indifference curve

Question 12

Which of the following is NOT a property of rational consumer behavior?

Accepted Answer

Act spontaneously

Answer

Maximize utility

Answer

Consider all available options

Answer

Make consistent choices

Question 13

The Giffen paradox refers to the situation where:

Accepted Answer

An increase in the price of a good leads to an increase in the quantity demanded

Answer

An increase in the price of a good leads to a decrease in the quantity demanded

Answer

A decrease in consumer income leads to an increase in the quantity demanded of a normal good

Answer

A decrease in consumer income leads to a decrease in the quantity demanded of an inferior good

Question 14

Which of the following statements is **NOT** an assumption of consumer theory?

Accepted Answer

Consumers have perfect knowledge about the products and services available to them.

Answer

Consumers act rationally to maximize their satisfaction.

Answer

Consumers prefer more of a good to less of the same good, all else being equal.

Answer

Consumers' preferences are consistent and transitive.

Question 15

A consumer's utility function:

Accepted Answer

Numerically quantifies the satisfaction (or utility) derived from consuming different combinations of goods.

Answer

Represents the consumer's budget constraint.

Answer

Indicates the consumer's income level.

Answer

Describes the availability of goods in the market.

Question 16

The elasticity of demand measures the:

Accepted Answer

Responsiveness of quantity demanded to changes in price, expressed as a percentage.

Answer

Ratio of the percentage change in price to the percentage change in quantity demanded.

Answer

Absolute change in quantity demanded for a given change in price.

Answer

Steepness of the demand curve.

Question 17

A Giffen good:

Accepted Answer

Is a good for which demand increases as its price increases.

Answer

Is a good for which demand decreases as its price increases.

Answer

Is a good that is not affected by changes in price.

Answer

DoesNotExist

Question 18

The substitution effect:

Accepted Answer

Describes the change in consumption of a good due to a **relative price** change.

Answer

Describes the change in consumption of a good due to an income change.

Answer

Describes the change in consumption of a good due to a taste change.

Answer

Is unrelated to price changes.

Question 19

Which of the following is **NOT** a **key** determinant of consumer demand?

Accepted Answer

Weather conditions.

Answer

Consumer income.

Answer

Product prices.

Answer

Advertising campaigns.

Question 20

In a perfectly competitive market, which government policy would lead to an increase in consumer surplus?

Accepted Answer

Providing a subsidy to consumers

Answer

Imposing a price ceiling below the equilibrium price

Answer

Setting a price floor above the equilibrium price

Question 21

When the income effect exceeds the substitution effect, what happens to the demand for normal and inferior goods?

Accepted Answer

Normal goods: increase; Inferior goods: decrease

Answer

Normal goods: decrease; Inferior goods: increase

Answer

Both normal and inferior goods: increase

Answer

Both normal and inferior goods: decrease

Question 22

Which statement accurately describes a property of rational consumer behavior?

Accepted Answer

Consumers maximize utility given their budget constraint.

Answer

Consumers prefer fewer goods to more goods.

Answer

Consumers always save a portion of their income.

Answer

Consumers do not consider future consequences.

Question 23

What is the relationship between combinations of goods on an indifference curve?

Accepted Answer

They represent equal satisfaction for the consumer.

Answer

They minimize the cost of consumption.

Answer

They equate budget constraints.

Answer

They maximize the consumer's utility.

Question 24

The marginal rate of substitution (MRS) indicates the:

Accepted Answer

Amount of one good a consumer is willing to sacrifice to obtain more of another good while maintaining the same level of satisfaction.

Answer

Change in utility derived from a change in income.

Answer

Total amount of money consumers are willing to spend on different goods.

Question 25

Why does the demand curve for a normal good typically slope downward?

Accepted Answer

As the price of the good increases, consumers substitute towards more affordable options.

Answer

Consumers have more money to spend on goods as prices fall.

Answer

Consumers tend to purchase more of a good as its price increases.

Question 26

Elasticity measures the:

Accepted Answer

Responsiveness of quantity demanded to changes in price.

Answer

Influence of income on the demand for goods.

Answer

Effect of changes in utility on total income.

Answer

Impact of changes in price on the quantity supplied.

Question 27

What is the accepted definition of consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay and the actual price paid.

Answer

The overall satisfaction a consumer receives from consuming a good.

Answer

The satisfaction derived from the final unit of a good consumed.

Question 28

According to the law of diminishing marginal utility, which statement is true?

Accepted Answer

As consumption of a good increases, the additional satisfaction derived from each additional unit decreases.

Answer

Total satisfaction derived from a good increases proportionally with consumption.

Question 29

Which of the following is a key determinant of consumer demand?

Accepted Answer

Consumer preferences and tastes.

Answer

Interest rate fluctuations.

Answer

Technological advancements in production.

Answer

Government tax policies.