Consumer Equilibrium

Economics is a branch of science that analyzes human behaviour to allocate scarce commodities so that consumers are satisfied, producers are profitable, and society’s social welfare is maximized. 

A consumer is considered in equilibrium when, given his cash inflow and the prices of two commodities, he maximizes his satisfaction. When the slopes of IC equal the slopes of the budget line, he has reached equilibrium. This is what we call consumer equilibrium. This chapter covers various MCQ questions to provide a deeper understanding of consumer equilibrium with answers for reference. It is also referred to as utility analysis. 

1. Which of Gossen’s laws is the First?

1. 1. Law of Diminishing Marginal Utility
   2. Law of Demand
   3. Surplus of the Consumer
   4. Law of Equi-marginal Utility

Answer:  A) Law of Diminishing Marginal Utility

2. Which of the statements below is correct?

1. 1. Utility means desire-satisfying power 
   2. The utility is a function of desire intensity 
   3. Consumption desire gives rise to utility
   4. All of the above.

Answer:  D) All of the above.

3. Who was the one who coined the term “utility”?

1. 1. Pigou
   2. Marshall
   3. Hicks
   4. Samuelson

Answer:  B) Marshall 

4. Which of the following describes a utility characteristic?

1. 1. Utility is subjective
   2. The utility is a relative concept
   3. The utility is a psychological phenomenon
   4. All of the above

Answer: D) All of the above

5. What is the formula for calculating marginal utility? 

1. 1. ∆MU/∆Q
   2. ∆TU/∆Q
   3. ∆Q/∆MU
   4. ∆Q/∆TU 

Answer: C) ∆Q/∆MU

6. Who was the one who first proposed the concept of the Law of Equimarginal Utility?

1. 1.  J. S. Mill
   2. Ricardo
   3. Marshall
   4. Gossen 

Answer:  B) Ricardo

7. What is the ability to satisfy the human desire for good?

1. 1. Satisfaction
   2. Productivity
   3. Profitability
   4. Utility

Answer:  D) Utility

8. Who was the one who first proposed the ordinal utility theory?

1. 1. Hicks and Allen
   2. Pigou
   3. Marshall
   4. Ricardo

Answer: A) Hicks and Allen

9. What is the most important factor in determining demand?

1. 1. Availability of adequate resources
   2. Desire to consume
   3. Willingness to consume
   4. All of the above

Answer:  D) All of the above

10. In which goods does a decrease in price not lead to an increase in demand?

1. 1. Comfort Goods
   2. Necessities Goods
   3. Luxuries Goods
   4. None of the preceding

Answer:  B) Necessities Goods

11. A demand function is defined as which of the following?

1. 1. DX = PX
   2. Dx = (Px)
   3. PX
   4. None of these

Answer:  B) Dx = (Px)

12.Which of the below is a cause of reduced demand?

1. 1. Fall in Number of Buyers
   2. Fall in Income
   3. Fall in Taste of Consumer
   4. All the above

Answer:  D) All the above

13. As the price of coffee rises, so makes the demand for tea:

1. 1. Remains stable
   2. Falls
   3. Rises
   4. None of these

Answer:  C) Rises

14.What is the cause of the shift in demand?

1. 1. Change in price of related goods
   2. Population increase 
   3. Change in consumer’s income
   4. All of these

Answer: D) All of these

15. There is no fluctuation for which of the following changes?

1. 1. Change in income
   2. Change in price
   3. Change in taste and fashion
   4. None of these

Answer: D) None of these

16. When prices rise, demand for ‘Giffin’ goods:

1. 1.  Decreases
   2.  Remains constant
   3.  Increases
   4.  Becomes unstable 

Answer:  C) Increases

17. Which commodities do consumers reduce their consumption when their income rises?

1. 1. Normal goods
   2. Giffin goods
   3. Inferior goods
   4. All the three

Answer: B) Giffin goods

18. Which one of the following has less than one elasticity?

1. 1. Comforts
   2.  Luxuries
   3. Necessity Goods
   4. All of the Above

Answer:  D) All of the Above

19.What approach is used to determine the elasticity of demand?

1. 1. Point Method
   2. Percentage or Proportionate Method
   3. Total Expenditure Method.
   4. All of the above

Answer:  D) All of the above

20.Who was the first to propose the proportionate or percentage approach to calculating demand elasticity?

1. 1. Flux
   2. Hicks
   3. Marshall
   4. None of these

Answer:  A) Flux

21. How many different types of demand elasticity does demand have?

1. 1. Five
   2. Six
   3. Three
   4. Seven

Answer: A) Five

22. Which of the following influences demand elasticity?

1. 1. Price Level
   2. Nature of Goods
   3.  Income Level
   4. All of these  

Answer: D) All of these  

23. In which analyses may utility be expressed as a precise number, such as 1, 2, 3, and so on?

1. 1. Ordinal utility analysis
   2. Cardinal utility analysis
   3. Both (a) and (b)
   4. None of these

Answer: B) Ordinal utility analysis

24. The ordinal utility notion expresses utility in terms of:

1. 1. level of satisfaction
   2. Constants
   3. Units
   4. none of these

Answer: A) level of satisfaction

25. The overall usefulness of a commodity____________ as we use more units of it ever, but at a decreasing rate:

1. 1. Decreases
   2. Increases
   3. becomes zero
   4. remains constant

Answer: B) Increases

26. Does indifference curve analysis require one of the following assumptions?

1. 1. Declining marginal rate of substitution
   2. Cardinal numbers
   3. Monotonic preference of the consumer
   4. All of the above

Answer: C) Monotonic preference of the consumer

27. The slope of IC tends to ___________ drop as we walk along the indifference curve (left to right).

1. 1. Zero
   2. Rise
   3. Decline
   4. Unity 

Answer:  C) Decline

28. When the following conditions are met, total utility is at its peak:

1. 1. The marginal utility is Zero
   2. The average utility is maximum
   3. The average utility is Zero
   4. Marginal utility is maximum

Answer:  D) Marginal utility is Zero

29. _______displays numerous combinations of these two products that provide the same level of satisfaction:

1. 1. Indifference curve
   2. Marginal utility curve
   3. ISO cost curve
   4. ISO quant

Answer:  A) Indifference curve

30. Which of the statements below is correct?

1. 1. The utility is a function of the intensity of desire
   2. The desire for consumption gives birth to utility
   3. Utility means want-satisfying power
   4. All of the above

Answer: D) All of the above

31. When the price of commodities ‘X’ declines, increasing in demand for goods ‘Y,’ both goods are:

1. 1. Complementary goods
   2. Substitute goods
   3. Not related
   4. Competitor

Answer:  A) Complementary goods

32. The following is a diagrammatic representation of the set of consumer indifference:

1. 1. budget line
   2. utility curve
   3. indifference curve
   4. transformation curve

Answer: c) indifference curve

33. Indifference curve analysis requires which of the following assumptions?

1. 1. Declining marginal rate of substitution
   2. Cardinal numbers
   3. Monotonic preference of the consumer
   4. All of the above

Answer: C) Monotonic preference of the consumer

34. When only one unit is utilized, the following results are obtained:

1. 1. MU=TU
   2. MU> TU
   3. MU=0
   4. MU+TU

Answer: A) MU=TU

35. When two commodities are used, equilibrium is reached when the rupee value of satisfaction is the same for both:

1. 1. True
   2. False
   3. can not say
   4. none of these 

Answer:  A) true 

36. The Demand Curve has a general slope of:

1. 1. Downward from left to right
   2. Parallel to X-axis
   3. Parallel to Y-axis
   4. Upward from left to right

Answer:  A) Downward from left to right

37. The line that depicts all different combinations of two things that a consumer can buy by spending all of his income, given the money income and the price, is called:

1. 1. production line
   2. iso-cost line
   3. price ratio
   4. budget line

Answer:  D) budget line

38. The budget line denotes:

1. 1. cost-benefit analysis
   2. percentage of income
   3.  Ratio of output
   4.  the cost-benefit ratio

Answer:   A) cost-benefit analysis

39. It must be true that when the marginal is negative, 

1. 1. The average is negative
   2. The average is positive
   3. The total is decreasing
   4.  The total is negative

Answer: C) The total is decreasing

40. Since they are convex to the origin, indifference curves are convex as, 

1. 1. Two goods are imperfect substitutes
   2. Two goods are perfect substitutes
   3. Two goods are perfect complementary goods
   4. None 

Answer:  A) Two goods are imperfect substitutes

41.  When Marginal Utility = 0, Total Utility is

1. 1. Laws of return
   2. Minimum
   3. Maximum
   4. None of the above

Answer:  C) Maximum

42. The concept of diminishing marginal value is the foundation of

1. 1.  Laws of return
   2. Law of demand
   3. Law of supply
   4. None 

Answer:  B) Law of demand

43. If MU is positive, TU will be 

1. 1. Is highest
   2. Remains constant
   3. Decreases
   4. Increases

Answer: D) Increases

44. The utility is a term that is used to describe ______.

1. 1.  Necessary
   2. Useless
   3. Useful
   4. Satisfaction

Answer: D) Satisfaction

45. Demand elasticity is defined as:

1. 1. Quantitative Statement
   2. Qualitative Statement
   3. Both (a) and (b)
   4. None

Answer:  A) Quantitative Statement

46. Which of the following factors influences demand elasticity?

1. 1. Price Level
   2. Income Level
   3. Nature of Goods
   4. All 

Answer:  D) all

47. The demand for a good is inelastic, according to the total outlay method, when:

1. 1. When the price of goods decreases and money spent decreases
   2. Expenditure remains the same, even if the price falls
   3. Expenditure decreases with the price increase.
   4. Price will fall with the increase in the amount spent

Answer: A) When the price of goods decreases and money spent decreases.

48. The elasticity of demand is: If demand for goods changes by 60% as a result of a 40% price adjustment, the elasticity of demand is:

1. 1. -1.5
   2. Zero
   3. 0.5
   4. 1

Answer:  A) -1.5

49. The demand elasticity at the midpoint of a line segment demand curve is:

1. 1. The result will be zero.
   2. There will be a sense of belonging.
   3. There shall be no limit.
   4. None of the above 

Answer: B) There will be a sense of belonging.

50. What is the elasticity of demand for essentials?

1. 1. Unlimited
   2. Greater than unity
   3. Less than unity
   4. Zero 

Answer: D) Zero 

51. Who proposed the percentage or proportionate approach to calculating demand elasticity?

1. 1. Flux
   2.  Hicks
   3. Marshall
   4. None of the above

Answer:  A) Flux

52.Demand has a steep slope. The curve of a normal good is _____.

1. 1. Negative
   2. Zero
   3. Undefined
   4. Positive

Answer:  A) Negative