#1
In the context of economic theory, what does the term 'utility' refer to?
The satisfaction or pleasure derived from consuming goods and services
ExplanationUtility refers to satisfaction derived from consumption.
#2
What role does the indifference curve play in consumer theory?
It shows the combinations of goods that give the consumer equal satisfaction
ExplanationIndifference curve: equal satisfaction combinations.
#3
What is the 'Engel's Law' in economics?
The lower the income, the higher the proportion of income spent on necessities
ExplanationEngel's Law: more income, less on necessities proportionally.
#4
According to the 'revealed preference theory,' how are preferences revealed?
Through observed choices and actions of consumers.
ExplanationPreferences revealed by observed choices and actions.
#5
According to the 'Income-Consumption Curve,' how does an increase in income affect consumption?
Consumption initially increases, then decreases with a further increase in income.
ExplanationInitial consumption rise, then decrease with income increase.
#6
According to the law of diminishing marginal utility, what happens as a consumer consumes more units of a good or service?
Marginal utility decreases
ExplanationMarginal utility decreases with increased consumption.
#7
What is the substitution effect in the context of consumer behavior?
The change in quantity demanded due to the availability of substitutes
ExplanationSubstitution effect: change in demand due to substitute availability.
#8
What is the difference between cardinal utility and ordinal utility?
Cardinal utility is measurable, while ordinal utility is not measurable
ExplanationCardinal utility is measurable, ordinal is not.
#9
What does the concept of 'budget constraint' represent in consumer theory?
The limit on the total expenditure a consumer can incur
ExplanationBudget constraint: limit on consumer expenditure.
#10
What is the concept of 'consumer equilibrium' in economics?
When a consumer maximizes their total utility given their budget constraint
ExplanationConsumer equilibrium: maximum utility within budget.
#11
Explain the concept of 'income effect' in the context of a price change.
The change in quantity demanded due to a change in income
ExplanationIncome effect: demand change due to income change.
#12
What is the difference between 'marginal utility' and 'total utility'?
Marginal utility is the satisfaction derived from the last unit consumed, while total utility is the satisfaction from all units consumed.
ExplanationMarginal vs. total utility: last unit vs. all units satisfaction.
#13
What does the Engel curve depict in consumer theory?
The relationship between income and quantity demanded
ExplanationEngel curve shows relationship between income and demand.
#14
According to the rational choice theory, what assumption is made about consumer behavior?
Consumers always maximize utility
ExplanationRational choice theory assumes utility maximization.
#15
What is the difference between a normal good and an inferior good?
Normal goods have a positive income elasticity, while inferior goods have a negative income elasticity
ExplanationNormal goods: positive income elasticity; inferior goods: negative.
#16
Explain the concept of 'revealed preference' in consumer theory.
It is the idea that a person's preferences can be inferred from their observed choices
ExplanationRevealed preference: preferences inferred from choices.
#17
What is the law of diminishing marginal rate of substitution?
As a consumer consumes more of a good, the marginal rate of substitution decreases
ExplanationDiminishing marginal rate of substitution: decreased substitution rate with consumption increase.
#18
Define the concept of 'revealed preference' in consumer theory.
It is the idea that a person's preferences can be inferred from their observed choices
ExplanationRevealed preference: preferences inferred from choices.
#19
What is the significance of the 'income elasticity of demand' in consumer theory?
It measures the responsiveness of quantity demanded to a change in consumer income.
ExplanationIncome elasticity: demand responsiveness to income change.