Economics 7: Opportunity Cost and Economic Growth

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What does a negative slope of an indifference curve indicate?

Consuming more of one commodity leads to consuming more of the other commodity.

Consuming less of one commodity leads to consuming less of the other commodity.

As less of one commodity is consumed, more of the other commodity must be consumed to maintain utility. (correct)

There is no relationship between the consumption of the two commodities.

Why do indifference curves never intersect?

Points of intersection are not relevant for consumer decision-making.

Intersecting indifference curves represent different levels of utility. (correct)

Intersecting curves lead to an inconsistency in utility measurement.

Intersecting curves imply a change in consumer preferences.

How is the law of diminishing marginal rate of substitution confirmed?

By inspecting Figure 4.6 and observing the trend in utility levels. (correct)

By comparing the prices of the goods.

By analyzing the consumer's budget constraints.

By calculating the total utility derived from consuming both goods.

What is violated if an indifference curve touches either axis?

The assumption that consumers buy two goods in combinations. Signup and view all the answers

In the context of indifference curves, why is intersecting not allowed?

Intersecting curves represent conflicting levels of satisfaction. Signup and view all the answers

What happens if two indifference curves intersect at a point?

The consumer would be indifferent between different levels of utility. Signup and view all the answers

What concept explains the decrease in the rate at which a consumer is willing to substitute one good for another?

Law of diminishing marginal utility Signup and view all the answers

In consumer theory, which of the following is a fundamental assumption related to consumer preferences?

Rational choice theory Signup and view all the answers

Why is the law of diminishing marginal rate of commodity substitution important in consumer choice theory?

It explains the negative slope of indifference curves Signup and view all the answers

What concept in economics is directly related to the idea that consumers will always prefer more goods to less given their income and prices?

Consumer rationality Signup and view all the answers

In consumer theory, what does the axiom of transitivity imply about consumer preferences?

Preferences are complete and consistent Signup and view all the answers

How does the law of diminishing marginal rate of commodity substitution impact consumer utility?

It reduces the rate at which consumers trade one good for another Signup and view all the answers

What does the law of diminishing marginal rate of commodity substitution state?

As a consumer gives up more of one good, the willingness to give up a unit of another good decreases. Signup and view all the answers

What is the relationship between the marginal rate of transformation (MRT) and the opportunity cost of producing goods?

MRT measures the opportunity cost of producing goods. Signup and view all the answers

How is economic growth represented on a production possibilities curve (PPC)?

By an outward shift in the PPC. Signup and view all the answers

On an indifference curve, what does the law of diminishing marginal rate of commodity substitution imply?

Consumers are less willing to give up one good for another as they have more of the former. Signup and view all the answers

How does the opportunity cost change when moving from output X to output Y on a PPC?

The opportunity cost is obtained as MRTbr = 0. Signup and view all the answers

In Figure 1.3, what does the outward shift in the production possibilities curve (PPC) represent?

Economic growth leading to increased production capacity. Signup and view all the answers

Economics 7: Opportunity Cost and Economic Growth

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