#1
Which of the following represents the budget line?
The line that shows the maximum combinations of goods a consumer can buy with their income
ExplanationRepresents affordable combinations of goods given income
#2
In consumer theory, what does the term 'utility' refer to?
The total satisfaction a consumer gets from consuming goods and services
ExplanationOverall satisfaction from consuming
#3
What does the indifference curve represent in consumer theory?
The combinations of goods that provide equal levels of satisfaction to the consumer
ExplanationIllustrates equally satisfying combinations
#4
What does the law of demand state?
As the price of a good increases, the quantity demanded decreases
ExplanationInverse relationship between price and demand
#5
What does the budget constraint show in consumer theory?
The trade-off between two goods given the consumer's income and the prices of the goods
ExplanationIllustrates trade-offs based on income and prices
#6
What is the assumption of transitivity in consumer choice theory?
If a consumer prefers bundle A to bundle B and bundle B to bundle C, then the consumer must prefer bundle A to bundle C
ExplanationEnsures consistent preferences among bundles
#7
What does the marginal rate of substitution (MRS) measure in consumer theory?
The rate at which the consumer substitutes one good for another while maintaining the same level of utility
ExplanationRate of substitution while keeping satisfaction constant
#8
What is the law of diminishing marginal utility?
The more units of a good a consumer consumes, the less satisfaction each additional unit provides
ExplanationDecrease in satisfaction with more consumption
#9
What does the Engel curve represent in consumer theory?
The relationship between the quantity of a good consumed and the consumer's income
ExplanationRelationship between consumption and income
#10
What is the substitution effect in consumer theory?
The change in consumption of a good caused by a change in its price, holding the consumer's utility constant
ExplanationChange in consumption due to price change while satisfaction remains same
#11
What is the income effect in consumer theory?
The change in consumption of a good caused by a change in the consumer's income
ExplanationChange in consumption due to income change
#12
What is meant by a Giffen good in consumer theory?
A good for which the quantity demanded decreases as income increases
ExplanationInverse relationship between demand and income