Tag: indifference curve

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Questions Related to indifference curve

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Higher the level of income, Higher is the level of Savings. This statement is ______________.

  1. True

  2. False

  3. Partially True

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the consumption function, as income increases, consumption also increases, but usually at a slower rate, meaning savings increase as income rises.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

A relative price is?

  1. Price expressed in terms of money

  2. What you get paid for babysitting your cousin

  3. The ratio of one money price to another

  4. Equal to a money price
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
A relative price is the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices.
Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

The slope of price line is given by the ______________.

  1. taste and preferences of the consumer

  2. prices of both the commodities

  3. price of commodity $X$ alone

  4. price of commodity $Y$ alone
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The slope of price line is a ratio of prices of both the commodities 'X' and 'Y'. Thus, it is given by the prices of both the commodities.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Position of the price line would ________ with a change in the money income of the consumer.

  1. not change

  2. change

  3. depend on other factors

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Position of the price line would change with change in money income of the consumer, because money income determines the budget/purchasing power of the consumer.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Given the income of the consumer, the slope of the price line is determined by the __________.

  1. Price of $X$

  2. Price of $Y$

  3. Ratio of prices of $X$ and $Y$

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The slope of price line is determined by the ratio of prices of both the commodities 'X' and 'Y'. It is the locus of all the bundles of 'X and Y' that can be bought with the given income of the consumer.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

The total effect of a price change of a commodity is _______________.

  1. substitution effect plus price effect

  2. substitution effect plus income effect

  3. substitution effect plus demonstration effect

  4. substitution effect minus income effect
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The total effect of a price change is the sum of the substitution effect (changing relative prices) and the income effect (changing real purchasing power).

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Consumer's equilibrium condition can be written as ___________.

  1. $\dfrac{MU _x}{P _x} = \dfrac{MU _y}{P _y}$

  2. $\dfrac{MU _x}{P _x} > \dfrac{MU _y}{P _y}$

  3. $\dfrac{MU _x}{P _x} < \dfrac{MU _y}{P _y}$

  4. $\dfrac{P _x}{MU _x} = \dfrac{P _y}{MU _y}$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The condition for consumer equilibrium in the case of two goods is that the marginal utility per dollar spent on each good must be equal, expressed as MUx/Px = MUy/Py.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Budget line is also called _________.

  1. consumption possibility line

  2. production possibility line

  3. distribution possibility line

  4. saving possibility line
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The budget line shows all possible consumption bundles a consumer can afford, hence it is often referred to as the consumption possibility line.

Multiple choice business economics and quantitative methods government budget and economy consumer's budget public finance indifference curve

Convex indifference curve is explained by _________.

  1. diminishing MRS

  2. increasing MRS

  3. constant MRS

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The convexity of an indifference curve toward the origin is a direct result of the diminishing marginal rate of substitution (MRS), meaning the consumer is willing to give up less of one good to get more of another as they consume more of it.