#1
According to the concept of revealed preference, how can consumer preferences be identified?
By observing the choices consumers actually make in the market.
ExplanationPreferences are inferred from observed consumer choices.
#2
What is the significance of the income effect in consumer choice theory?
It examines how changes in income affect the quantity demanded of a good.
ExplanationChanges in demand due to income changes.
#3
In consumer choice theory, what does the term 'ordinal utility' refer to?
The ranking of preferences without assigning specific numerical values.
ExplanationPreferences ranked without numerical values.
#4
According to the law of demand, how does the quantity demanded of a good change when its price decreases?
It increases.
ExplanationInverse relationship between price and quantity demanded.
#5
What is the impact of an increase in the price of a complementary good on the demand for the main good?
The demand for the main good decreases.
ExplanationNegative relationship between complementary goods' prices and demand.
#6
Which of the following is a basic assumption of consumer behavior in microeconomics?
Consumers make rational decisions to maximize utility.
ExplanationConsumers aim to maximize satisfaction through their choices.
#7
What does the law of diminishing marginal utility state?
The additional satisfaction from consuming one more unit of a good decreases as more units are consumed.
ExplanationAs consumption increases, the additional satisfaction per unit decreases.
#8
What is the substitution effect in consumer choice theory?
The change in quantity demanded due to a change in the relative price of a good.
ExplanationChanges in demand due to price fluctuations.
#9
What role does the budget line play in consumer choice theory?
It depicts the boundary between what a consumer can and cannot afford.
ExplanationDefines affordable versus unaffordable choices.
#10
What is the concept of 'revealed preference' in consumer theory?
Consumer preferences are revealed through their actual choices in the market.
ExplanationPreferences inferred from market actions.
#11
In consumer choice theory, what is the significance of a Giffen good?
The demand for Giffen goods increases as their prices rise due to income and substitution effects.
ExplanationUnique goods with demand increasing with price.
#12
What is the concept of 'opportunity cost' in consumer decision-making?
The highest-valued alternative that must be sacrificed to consume a particular good.
ExplanationCost of the next best alternative foregone.
#13
In economics, what does the term 'indifference curve' represent?
A curve representing the trade-off between two goods that give the consumer the same level of satisfaction.
ExplanationIt illustrates combinations of goods providing equal satisfaction.
#14
What is the difference between normal goods and inferior goods?
Normal goods are demanded more as income increases, while inferior goods are demanded less as income increases.
ExplanationNormal goods are preferred with rising income, while inferior goods are less desired.
#15
What is the concept of 'utility' in economics?
The satisfaction or pleasure derived from consuming goods and services.
ExplanationMeasurement of satisfaction from consumption.
#16
How does the concept of elasticity relate to consumer choice?
It assesses how changes in the price of a good affect the quantity demanded by consumers.
ExplanationMeasures consumer responsiveness to price changes.
#17
How does the concept of 'marginal utility' contribute to consumer decision-making?
Consumers make decisions based on the additional satisfaction gained from consuming one more unit of a good.
ExplanationDetermines optimal consumption levels.
#18
What is the key difference between perfect substitutes and perfect complements in consumer preferences?
Consumers have no preference between perfect substitutes, while they prefer consuming perfect complements together.
ExplanationPreferences for identical versus combined goods.
#19
What does the term 'consumer surplus' represent in economics?
The additional satisfaction gained from consuming a good beyond what consumers paid for it.
ExplanationExcess satisfaction above what was paid.