Consumer Theory Vs Real Consumers(Economics ) Questions and Answers

Question 1. If consumption when young and when old are both normal goods, an increase in the interest rate ?
  1.    will always increase the quantity of saving
  2.    will always decrease the quantity of saving
  3.    will increase the quantity of saving if the substitution effect outweighs the income effect
  4.    will increase the quantity of saving if the income effect outweighs the substitution effect
Explanation:-
Answer: Option C. -> will increase the quantity of saving if the substitution effect outweighs the income effect
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 2. If an increase in a consumer’s income causes the consumers to decrease her quantity demanded of a good, then the good is ?
  1.    a substitute good
  2.    a normal good
  3.    a complementary good
  4.    an inferior good
Explanation:-
Answer: Option D. -> an inferior good
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 3. Refer to Exhibit 4, Suppose that the consumer must choose between buying socks and belts Also suppose that the consumer’s income is €100 Suppose that the price of a pair of socks falls from €5 to €2 The substitution effect is represented by the movement from point ?
  1.    Z to point X
  2.    X to point X
  3.    X to point Z
  4.    Y to point X
Explanation:-
Answer: Option A. -> Z to point X
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 4. Suppose we measure the quantity of good X on the horizontal axis and the quantity of good Y on the vertical axis If indifference curves are bowed inward, as we move from having an abundance of good X to having an abundance of good Y, the marginal rate of substitution of good Y for good X (the slope of the indifference curve) ?
  1.    rises
  2.    stays the same
  3.    could rise or fall depending on the relative prices of the two goods.
  4.    falls
Explanation:-
Answer: Option A. -> rises
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 5. If income where to double and prices were to to double the budget line would ?
  1.    stay the same
  2.    rotate inward
  3.    shift outward in a parallel fashion
  4.    rotates outward
  5.    shift inward in parallel fashion
Explanation:-
Answer: Option A. -> stay the same
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 6. Refer to Exhibit 4, Suppose that the consumer must choose between buying socks and belts Also suppose that the consumer’s income is €100 A pair of socks is ?
  1.    an inferior effect
  2.    a Geffen good
  3.    a normal good
  4.    none of these answers
Explanation:-
Answer: Option C. -> a normal good
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 7. The consumer’s optimal purchase of any two goods is the point where ?
  1.    the budget constraint crosses the indifference curve
  2.    the two highest indifference curves cross
  3.    the consumer reaches the highest indifference curve subject to remaining on the budget constraint
  4.    the consumer has reached the highest indifference curve
Explanation:-
Answer: Option C. -> the consumer reaches the highest indifference curve subject to remaining on the budget constraint
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 8. A change in the relative prices of which of the following pair of goods would likely cause the smallest substitution effect ?
  1.    right shoes and left shoes
  2.    petrol from BP and petrol from shell
  3.    kit-Kat chocolate snacks and Twix chocolate snacks
  4.    coke and Pepsi
Explanation:-
Answer: Option A. -> right shoes and left shoes
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 9. The slope at any point on an indifference curve is known as ?
  1.    the marginal rate of substitution
  2.    the marginal rate of trade-off.
  3.    the trade-off rates
  4.    the marginal rate of indifference
Explanation:-
Answer: Option A. -> the marginal rate of substitution
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
Question 10. Which of the following is not true regarding the outcome of a consumer’s optimization process ?
  1.    The marginal utility per dollar spent on each good is the same
  2.    The marginal rate of substitution between goods is equal to the ratio of the prices between goods
  3.    The consumer’s indifference curve is tangent to his budget constraint
  4.    The consumer has reached his highest indifference curve subject to his budget constraint
  5.    The consumer is indifferent between any two points on his budget constraint
Explanation:-
Answer: Option E. -> The consumer is indifferent between any two points on his budget constraint
NO EXPLANATION IS AVAILABLE FOR THIS QUESTION!
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