Free Consumer Behaviour 02 Practice Test - 11th Grade - Commerce

Reeta buys only compact discs and tapes and spends all her income. The marginal utility from a compact disc is 30 and the marginal utility from a tape is 20. The price of a compact disc is INR 15 and the price of a tape is INR 10. To maximize her utility, Reeta should

A. increase her consumption of compact discs
B. Increase her consumption of tapes
C. not change her consumption of compact discs and tapes
D. lower the price of a tape

SOLUTION

Solution : C

MCCDs/PCDs=MUtape/Ptape. Reeta is already maximizing her utility.

The fact that rubies are more expensive than milk reflects the fact that for most consumers

A. the total utility from rubies exceeds that from milk
B. the marginal utility from rubies equals that from milk
C. more milk is consumed than rubies
D. a quart of rubies is prettier than a quart of milk

SOLUTION

Solution : C

Because more milk is consumed, the MU from milk is lower than the MU from rubies.

In a situation when MRS>PX/PY, the consumer would react by

A. diminishing the consumption of commodity-X
B. increasing the consumption of commodity-Y
C. increasing the consumption of commodity-X
D. none of these

SOLUTION

Solution : C

MRS is the amount of Good-Y which a consumer is willing to give up for one unit more of Good-X. In a situation when MRS>PX/PY, the consumer would react by increasing the consumption of commodity-X.

MRS is determined by

A. satisfaction level of the consumer
B. income of the consumer
C. tastes of the consumer
D. preferences of the consumer

SOLUTION

Solution : D

MRS is always related to the choice and preferences of the consumer.

A shift in the budget line, when prices are constant, is due to

A. change in demand
B. change in income
C. change in preferences
D. change in utility

SOLUTION

Solution : B

A budget line shows different combination of two goods, which a consumer can attain, given his income and market price of the goods. Therefore, any shift in the budget line, when prices are constant will be due to change in income of the consumer.

All attainable combinations of Good-X and Good-Y are below the budget line of a consumer. State True or False.

A. True
B. False

SOLUTION

Solution : B

All attainable combinations of Good-X and Good-Y are below as well as along the budget line.

A consumption point inside the budget line

A. is unaffordable.
B. shows that the consumer spends income on only one of the goods.
C. shows that the consumer has chosen to spend all of his or her income on both products.
D. is possible to afford but has some unspent income.

SOLUTION

Solution : D

Any point inside the budget line indicates that it is possible to afford but has spent unspent income.

Which of the following describes what happens to a consumer's budget line if that consumer's budget increases? The budget line

A.

becomes steeper.

B.

shifts farther away from the origin of the graph.

C.

does not change.

D.

shifts closer to the origin of the graph.

SOLUTION

Solution : B

The budget line shifts farther away from the origin.

Moving along an indifference curve

A. the consumer prefers some of the consumption points to others.
B. marginal rate of substitution for a good increases as more of the good is consumed.
C. marginal rate of substitution is constant.
D. consumer does not prefer one consumption point to another.

SOLUTION

Solution : D

It indicates that the consumer does not prefer one consumption point to another.

Suppose a consumer has INR 100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is INR 20 per pair and the price of a shirt is INR 15 each, which of the following combinations is unaffordable to the consumer?

A. 0 pairs of shoes and 0 shirts
B. 2 pairs of shoes and 4 shirts
C. 5 pairs of shoes and 0 shirts
D. 0 pairs of shoes and 7 shirts

SOLUTION

Solution : D

The total price comes to INR 105 (7 shirts INR 15), which is greater than INR 100.