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

Consumer's equilibrium occurs when __________.

  1. $MRS > \dfrac{P _x}{P _y}$

  2. $MRS = \dfrac{P _x}{P _y}$

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

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

Consumer equilibrium occurs at the point where the indifference curve is tangent to the budget line, meaning the slope of the indifference curve (MRS) equals the slope of the budget line (Px/Py).

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

Constraints on which budget line is made are __________.

  1. given income and prices

  2. given prices and tastes

  3. given income and tastes

  4. given prices and government policy
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A budget line is defined by the constraint of the consumer's total money income and the market prices of the two goods being considered.

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

For consumers' equilibrium to be stable, the requirement is __________.

  1. constant MRS

  2. increasing MRS

  3. diminishing MRS

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

For an equilibrium to be stable and represent a maximum utility point, the indifference curve must be convex to the origin, which is characterized by a diminishing MRS.

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

The slope of the indifference curve is called __________.

  1. opportunity cost ratio

  2. MRTS

  3. MRS

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

The slope of an indifference curve at any point is defined as the Marginal Rate of Substitution (MRS), which represents the rate at which a consumer is willing to trade one good for another while maintaining the same level of utility.

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

L-shaped indifference curve exists in case two goods are ____________.

  1. perfect complements

  2. perfect substitutes

  3. substitutes

  4. not related
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Perfect complements are goods that must be consumed in fixed proportions, resulting in L-shaped indifference curves where the vertex represents the optimal combination.

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

When indifference curve is straight downward sloping line, the two goods are _________.

  1. not related

  2. complements

  3. perfect substitutes

  4. perfect complements
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When goods are perfect substitutes, the consumer is willing to trade them at a constant rate, resulting in a straight-line indifference curve with a constant slope.

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

What is that one effect which Marshall ignored but Hicks took into account?

  1. Income effect

  2. Substitution effect

  3. Price effect

  4. Output effect
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Marshall focused primarily on the substitution effect in his analysis of demand, while Hicks explicitly incorporated the income effect to provide a more complete decomposition of the price effect.