Consumer Behavior and Indifference Curves
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Questions and Answers

What shape do the indifference curves take for perfect substitutes?

  • Straight lines (correct)
  • Diagonal lines
  • Circular lines
  • Curved lines

    • What does an indifference curve shaped as a right angle indicate about the goods?

  • They are perfect complements (correct)
  • They are perfect substitutes
  • They are normal goods
  • They are inferior goods

    • In the case of perfect substitutes, how does a consumer perceive the trade-off between two goods?

  • The consumer will only consume one type of good
  • The consumer is indifferent to the quantity of each good (correct)
  • The consumer prefers one good over the other
  • The consumer values both goods equally only if consumed together

    • What happens to the consumer's satisfaction if they obtain an additional left shoe without a matching right shoe?

    <p>Satisfaction remains the same</p> Signup and view all the answers

    How can one describe the relationship between the quantities of left shoes and right shoes for a consumer who views them as perfect complements?

    <p>They are consumed in fixed proportions</p> Signup and view all the answers

    What characterizes the marginal rate of substitution (MRS) for perfect complements?

    <p>It is either zero or infinite</p> Signup and view all the answers

    What is a neutral good in the context of consumer preferences?

    <p>A good that the consumer is indifferent about</p> Signup and view all the answers

    In which direction does increasing preference for a consumer's bundles of goods move on the graph?

    <p>Up and to the right</p> Signup and view all the answers

    What is the primary goal of the theory of consumer behaviour?

    <p>To explain how consumers maximize their satisfaction through income allocation</p> Signup and view all the answers

    What is assumed about consumers in traditional consumer behaviour theory?

    <p>They aim to maximize utility within their income constraints</p> Signup and view all the answers

    Which of the following accurately describes a consumption bundle?

    <p>A specific combination of goods a consumer wishes to consume</p> Signup and view all the answers

    How is the consumer's choice behavior depicted graphically in the theory of consumer behaviour?

    <p>By representing the consumption bundle with two goods</p> Signup and view all the answers

    What do we assume about the number of different goods in the consumer behaviour theory?

    <p>It remains constant and finite</p> Signup and view all the answers

    What does the convexity of a consumption set imply?

    <p>Goods can be consumed in fractional units and are divisible</p> Signup and view all the answers

    What role does a household play in consumer behaviour when purchasing goods and services?

    <p>The household acts as the decision-making unit for common goods.</p> Signup and view all the answers

    How do changes in income and prices affect consumer behavior according to the theory?

    <p>They influence demand differently among various goods.</p> Signup and view all the answers

    What happens to the budget line when both prices of Good 1 and Good 2 increase simultaneously by a constant factor?

    <p>The budget line shifts inward.</p> Signup and view all the answers

    If the prices of both goods double, how does this affect the intercepts of the budget line?

    <p>Both intercepts shift inward.</p> Signup and view all the answers

    When the price of Good 2 increases more than the price of Good 1, what effect does this have on the slope of the budget line?

    <p>The budget line becomes steeper.</p> Signup and view all the answers

    What effect does an increase in the price of Good 1 have on the budget line?

    <p>It rotates the budget line inward.</p> Signup and view all the answers

    How does a quantity tax affect the price of a good in terms of the consumer's budget line?

    <p>It acts like an increase in the price of the good.</p> Signup and view all the answers

    How does a decrease in the price of Good 2 affect the vertical intercept of the budget line?

    <p>It increases.</p> Signup and view all the answers

    What happens to the slope of the budget line when the price of Good 2 decreases?

    <p>The slope becomes steeper.</p> Signup and view all the answers

    What implication does an increase in both prices and a simultaneous decrease in income have on the budget line?

    <p>The budget line shifts inward.</p> Signup and view all the answers

    If the price of Good 2 increases, what is the expected change in the budget line?

    <p>It rotates inward and becomes flatter.</p> Signup and view all the answers

    If both goods are subjected to a price increase by a constant amount, what is the mathematical representation of the new budget constraint?

    <p>α p1 x1 + α p2 x2 = m</p> Signup and view all the answers

    In which situation does the budget line remain unchanged?

    <p>When both income and prices are multiplied by the same constant.</p> Signup and view all the answers

    What does the maximum amount of Good 1 purchased represent at the higher price of Good 1?

    <p>The horizontal intercept of the budget line.</p> Signup and view all the answers

    When the price of Good 2 is reduced, which of the following does NOT change?

    <p>The horizontal intercept of the budget line.</p> Signup and view all the answers

    If the price ratio p1/p2 increases, what can be inferred about the budget line?

    <p>The budget line rotates toward the vertical axis.</p> Signup and view all the answers

    What is the graphical representation of an increase in the price of Good 2?

    <p>Flatter budget line.</p> Signup and view all the answers

    If the price of Good 1 is unchanged, what primarily affects the budget line when Good 2's price changes?

    <p>The price ratio of goods.</p> Signup and view all the answers

    What does the theory of revealed preference base its inference of consumer preferences on?

    <p>Observed choices or purchases</p> Signup and view all the answers

    Which statement correctly reflects the concept of consistency in revealed preference?

    <p>If a consumer prefers basket X over Y, they will never prefer Y over X.</p> Signup and view all the answers

    If a consumer chooses basket A over basket B and both baskets cost the same, what can we conclude?

    <p>Basket A is preferred by the consumer.</p> Signup and view all the answers

    What assumption is NOT part of the revealed preference axiom?

    <p>Preferences are influenced by external factors.</p> Signup and view all the answers

    Which of the following describes transitivity in consumer preferences?

    <p>If X is preferred to Y and Y is preferred to Z, then X must be preferred to Z.</p> Signup and view all the answers

    In terms of cardinal utility, how is a higher utility assigned?

    <p>To the chosen bundle over the rejected bundle.</p> Signup and view all the answers

    How can the revealed preference theory be illustrated in a marketplace?

    <p>By observing the purchasing behavior of consumers.</p> Signup and view all the answers

    What is an implication of a consumer choosing a more expensive basket when a cheaper option is available?

    <p>Their preference for the more expensive basket is not revealed.</p> Signup and view all the answers

    What is the marginal rate of substitution (MRS) of good 1 for good 2 calculated as?

    <p>The ratio of the marginal utilities of goods 1 and 2</p> Signup and view all the answers

    Which transformation is not considered a monotonic transformation?

    <p>Adding a negative number</p> Signup and view all the answers

    What does the marginal utility of a good indicate?

    <p>The rate at which the utility changes as consumption increases</p> Signup and view all the answers

    If the utility function is given as $u(x_1, x_2) = x_1 x_2$, what does this indicate about its indifference curves?

    <p>Each curve can be formed by varying $u(x_1, x_2)$ across constants</p> Signup and view all the answers

    Which utility function is a monotonic transformation of $u(x_1, x_2) = x_1 x_2$?

    <p>$v(x_1, x_2) = (x_1 x_2)^2$</p> Signup and view all the answers

    How is the marginal utility of good 1 calculated?

    <p>By differentiating the utility function with respect to good 1</p> Signup and view all the answers

    Which statement accurately describes the property of monotonic transformations?

    <p>They maintain the same shape of indifference curves.</p> Signup and view all the answers

    If a consumer is willing to give up 2 units of good 2 for 1 additional unit of good 1, what is the MRS of good 1 for good 2?

    <p>2</p> Signup and view all the answers

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    Description

    This quiz explores concepts related to consumer behavior, focusing on indifference curves, perfect substitutes, and perfect complements. It examines how consumers perceive trade-offs between goods and the implications for their satisfaction. Test your understanding of critical terms like marginal rate of substitution and neutral goods.

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