CHAPTER 2: THEORY OF DEMAND AND

SUPPLY
UNIT 2: THEORY OF CONSUMER
BEHAVIOUR
1. Which of the following is a feature of the Indifference Curve?
a) It always slopes downward to the right
b) Indifference Curves are always convex to the origin
c) A higher Indifference Curve represents a higher level of satisfaction
d) All of the above

2. Indifference Curve Approach assumes__

a) Consumer has full knowledge of all relevant information
b) All Commodities are homogenous and divisible
c) Prices of Commodities remain the same throughout the analysis
d) All of the above

3. A set of ______ is called Indifference Map.

a) Demand Curve
b) Marginal Utility Curves
c) Cost Curves
d) Indifference Curves

4. No two ICs will cut or intersect each other. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

5. Convexity of IC is due to ___

a) Increasing trend of MRS
b) Decreasing trend of MRS
c) Constant trend of MRS
d) No trend of MRS at all

6. A Point above the Price Line will be ____ the reach of the Consumer, at his present levels
of income and spending.
a) Beyond
b) Within
c) Either (a) or (b)
d) Neither (a) nor (b)

7. At the equilibrium point on Indifference Curve which of the following is satisfied?

a) Slope of Price Line = Slope of IC
b) Slope of Price Line > Slope of IC
c) Slope of Price Line < Slope of IC
d) Any of the above
 8. Which of the following is a property of an Indifference curve?
a) It is convex to the origin.
b) The marginal rate of substitution is constant as you move along an indifference curve.
c) Marginal utility is constant as you move along an indifference curve.
d) Total utility is greatest where the 45 degree line cuts the indifference curve.

9. Utility is a ____
a) Subjective concept
b) Objective concept
c) Irrelevant concept
d) Indeterminate concept

10. Which of the following Utility measurement approaches is based on the Marshallian
school of thought?
a) Cardinal Utility Approach
b) Ordinal Utility Approach
c) Independent Variables Approach
d) Both (a) and (b)

11. Which of the theories is applicable under Cardinal Approach to Utility?

a) Law of Diminishing Marginal Utility
b) Law of Equi-Marginal Utility
c) Both (a) and (b) and consumer surplus theory
d) Neither (a) nor (b)

12. Marginal Utility can be stated by ____

a) TUn – TUn -1
b) Additional Utility derived from additional unit of commodity
c) Change in Total Utility/ Change in Quantity
d) All of the above

13. The Marginal Utility Curve is ______

a) Horizontal to Y-axis
b) Demand Curve of the Commodity
c) Vertical to X-axis
d) None of the above

Use the following Table to answer the next 3 Questions:

No. of Units Total Utility Marginal Utility
0 0
1 3600
2 6800
3 9600
4 12000
5 14000
6 15600
7 16800
8 17600
9 18000

14. What is the Marginal Utility when consumption increases from 4 units to 5 units?
a) 3000
b) 1200
c) 2000
d) 1500
15. What is the Marginal Utility when consumption increases from 6 units to 7 units?
a) 3000
b) 1200
c) 2000
d) 1500

16. What is the Marginal Utility when consumption increases from 8 units to 9 units?
a) 3000
b) 400
c) 2000
d) 1500

17. Which of the following is not an assumption of Law of Diminishing Marginal Utility?
a) Units consumed should be identical in all respects
b) There is no time gap between consumption
c) Units consumed should be of a standard
d) None of the above

18. Marginal Utility_______

a) Will always be positive
b) Will always be negative
c) Can be positive or negative but not zero
d) Can be positive or negative or zero

19. Which of the approaches uses Money Measurement Concept for Utility?
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

20. Marginal Utility will always show________

a) Increasing trend
b) Decreasing trend
c) Both (a) and (b)
d) Neither (a) nor (b)

21. The Law of Diminishing Marginal Utility does not apply to ________, where personal
preferences are dominant.
a) Music
b) Hobbies like Stamp and Coin Collection
c) Both (a) and (b)
d) Neither (a) nor (b)

22. The Consumer will attain ______ satisfaction, and will be in equilibrium when MU of
money spent on various goods that he buys, are equal.
a) Maximum
b) Minimum
c) No
d) Infinite

23. Ordinal Utility Approach is also called__

a) Indifference Curve Approach
b) Hicks and Allen Approach
c) Both (a) and (b)
d) Neither (a) nor (b)
 24. A Rational Person does not act unless__
a) The action is ethical
b) The action leads to Marginal Costs that exceed Marginal Benefits
c) The action produces Marginal Benefits that exceed Marginal Costs
d) The action makes money for the person

25. The Consumer will be willing to purchase an item, so long as the Marginal Utility
(additional satisfaction) derived is equal to the Price of the Commodity. This principle is
called ___
a) Consumer Equilibrium
b) Consumer Surplus
c) Consumer Advantage
d) Consumer Exploitation

26. The difference between the price a consumer is willing to pay and the price he actually
pays is called
a) Excess Price
b) Excess Demand
c) Consumer Surplus
d) Exploitation

27. As per the law of Diminishing Marginal Utility, Continuous Consumption means there
should be _____ between the consumption of one unit and another unit.
a) Equal time gap or interval
b) No time gap or interval
c) Long term gap or interval
d) Any of the above

Use of the following Table and answer the next 13 Questions:

No. of Units Total Utility Marginal Utility
0 0 ?
1 1800 A
2 B 1600
3 4800 C
4 D 1200
5 7000 E
6 F 800
7 8400 G
8 8800 H
9 I 200
10 J 0
11 8800 K
12 L -600

28. Find the value of “?” in the above Table.

a) 0
b) 1
c) 1800
d) Cannot be determined

29. Find the value of “A” in the above Table.

a) 0
b) 1
c) 1800
d) Cannot be determined
30. Find the value of “B” in the above Table.
a) 2
b) 3400
c) 1600
d) Cannot be determined

31. Find the value of “C” in the above Table.

a) 3
b) 4800
c) 1400
d) Cannot be determined

32. Find the value of “D” in the above Table.

a) 6000
b) 4
c) 1200
d) Cannot be determined

33. Find the value of “E” in the above Table.

a) 7000
b) 5
c) 1000
d) Cannot be determined

34. Find the value of “F” in the above Table.

a) 6
b) 7800
c) 800
d) Cannot be determined

35. Find the value of “G” in the above Table.

a) 7
b) 8400
c) 600
d) Cannot be determined

36. Find the value of “H” in the above Table.

a) 8800
b) 400
c) 8
d) Cannot be determined

37. Find the value of “I” in the above Table.

a) 9000
b) 200
c) 9
d) Cannot be determined

38. Find the value of “J” in the above Table.

a) 9000
b) 0
c) 10
d) Cannot be determined
39. Find the value of “K” in the above Table.
a) 200
b) -200
c) 11
d) Cannot be determined

40. Find the value of “L” in the above Table.

a) 600
b) -600
c) 8200
d) -8200

41. The Law of Diminishing Marginal Utility states that the more a consumer consumes a
product, he derives _______ from additional consumption.
a) Equal Utility
b) Higher Utility
c) Lesser Utility
d) Infinite Utility

42. Cardinal Utility Approach is also known as__________

a) Indifference Curve Analysis
b) Hicks and Allen Approach
c) Marginal Utility Analysis
d) All of the above

43. When Economists speak of the utility of a certain product, they are referring to ____
a) Demand for the product
b) Usefulness of the product in consumption
c) Satisfaction gained from consuming the product
d) Rate at which consumers are willing to exchange one good for another

44. Utility __
a) Differs from person to person
b) Differs from time to time
c) Differs from product to product
d) All of the above are correct

45. Cardinal Approach to Utility analyses _____

a) One Commodity at a time
b) Two Commodities at a time
c) Many Commodities at a time
d) Does not analyse any Commodity at all

46. Total Utility____

a) Will generally be positive
b) Will generally be negative
c) Can be positive or negative but not zero
d) Can be positive or negative of zero

47. Which of the following laws states that the more a consumer consumes a product, the
lesser the Utility he derives from the additional consumption?
a) Law of Equal – Marginal Utility
b) Law of Ordinal Utility
c) Law of Cardinal Utility
d) Law of Diminishing Marginal Utility
48. Which of the following is an assumption of Law of the Law of Diminishing Marginal
Utility?
a) No effect of Consumer’s Personal Tastes and Preference
b) Cardinal Approach to Utility
c) Different Units consumed should be identical in all respects.
d) All of the above

49. Law of Diminishing Marginal Utility applies only if _______ to measurement of utility is
assumed.
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

50. Which of the following Economists is not concerned with Ordinal Utility Approach?
a) Marshall
b) Hicks
c) Allen
d) All the above

51. Which of the approaches helps to explain the law of Demand?

a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

52. Consumer Surplus can be best represented as ___

a) What a Consumer is ready to pay less What he actually not pays
b) What a producer actually produces less What he actually pays
c) What a Consumer is ready to pay Less What he actually pays
d) What a Consumer is ready to pay willingly Less What he is forced to pay

53. If MU, is the Marginal Utility of product X and Px is the price of Product X, a Rational
Consumer will consume the Product X until__
a) MUx > Px
b) Mux < Px
c) MUx < Px
d) Mux = Px

54. A Consumer consumed three units of a product. Marginal Utilities derived from the first
two units are Rs. 500 and Rs. 400. If the price of the product is Rs. 300 per unit and the
Consumer is in equilibrium at 3 units, the Marginal Utility of the 3rd unit should be ___
a) 0
b) 300
c) 400
d) 500

55. While analyzing Marshall’s measures of Consumer’s Surplus, we assume__

a) Imperfect Competition
b) Perfect Competition
c) Monopoly
d) Monopsony
Use the following diagram to answer the next 5 questions. MM is the Marginal Utility Curve

A B

M’
MU

O C X
Qty. of Commodity

# YO Line is Price & Marginal Utility

56. In the above diagram, Market Price at Consumer Equilibrium level is given by ___
a) OA
b) OC
c) MM
d) None of the above

57. In the above diagram, the Consumer attains Equilibrium level by consuming ___ units.
a) OA
b) OC
c) MM
d) None of the above

58. In the above diagram, the Consumer’s Total Utility is given by ___
a) Area under OMBC
b) Area under OABC
c) Area under AMB
d) Cannot be determined

59. In the above diagram, the total price paid by the Consumer is given by ___
a) Area under OMBC
b) Area under OABC
c) Area under AMB
d) Cannot be determined

60. In the above diagram, the Consumer’s Surplus is given by__

a) Area under OMBC
b) Area under OABC
c) Area under AMB
d) Cannot be determined

61. Utility may be defined as _

a) Power of Commodity satisfy wants
b) Usefulness of a Commodity
c) Desire for a Commodity
d) None of the above
62. Which of the following statements regarding Utility is not true?
a) Utility is the psychological satisfaction that a Consumer derives by using a particular
product
b) Utility helps to understand how consumers make choices
c) Utility is always measurable
d) Utility is a purely subjective issue

63. Marginal Utility Approach is also called________

a) Ordinal Utility Analysis
b) Hicks and Allen Approach
c) Cardinal Utility Analysis
d) All of the above

64. The Cardinal Approach to Utility assumes Marginal Utility of Money is _______
a) Zero
b) Constant
c) Increasing Trend
d) Decreasing Trend

65. Total Utility derived by Ram by eating 10 Cakes is 250. Marginal Utility of the 11th Cake
is – 60. What will be the Total Utility for 11 Cakes?
a) – 60
b) 250
c) 190
d) 310

66. After reaching a saturation point, consumption of additional units of the commodity
cause___
a) Total Utility to fall and Marginal Utility to increase
b) Total Utility & Marginal Utility both to increase
c) Total Utility to fall and Marginal Utility to become negative
d) Total Utility to become negative and Marginal Utility to fall.

67. One of the assumptions is that the Law of Diminishing Marginal Utility is not applicable
to ___
a) Money
b) Gold
c) Both (a) and (b)
d) Neither (a) nor (b)

68. Which of the following laws say “If a person has a product which can be put to several
use lie will distribute it among these uses in such a way that it has the same Marginal
Utility?
a) Law of Equi-Marginal Utility
b) Law of Diminishing Marginal Utility
c) Law of Utility
d) Law of Diminishing Marginal Returns

69. As per the Ordinal Approach__

a) Measurement of Utility is not possible through money
b) Measurement of Utility is possible but it cannot be ranked
c) Measurement of Utility is not possible in cardinal numbers but it can be ranked
d) Measurement and ranking of Utility is possible
70. Rational decision-making requires that__
a) One’s choices be arrived at logically and without errors.
b) One’s choices be consistent with one’s goals
c) One’s choices never vary
d) One’s makes choices that do not involve trade-offs

71. In economics, what a Consumer is ready to pay minus what he actually pays, is termed
as ___
a) Consumer’s Equilibrium
b) Consumer’s Surplus
c) Consumer’s Expenditure
d) Any of the above

72. A Consumer consumed three units of a product. Marginal Utilities derived from the
three units are Rs. 400, Rs. 350 and Rs. 300, respectively. If the price of the product is Rs.
300 per unit, the Consumer Surplus is ___
a) 0
b) 50
c) 100
d) 150

73. Which of the following statements regarding Consumer Surplus is not true?
a) Consumer Surplus is useful for designing Government policies and implementing
welfare programs.
b) Consumer Surplus helps the monopolist in fixing the price of a commodity.
c) On the basis of Consumer Surplus only domestic trade can be advocated and
international trade should be avoided
d) Consumer Surplus can also be used to measure the health of an economy.

74. Under which of the following market types will Consumer’s Surplus be generally
minimum__
a) Perfect Competition
b) Monopoly
c) Monopolistic competition
d) All of the above

75. If the prices of ice-cream and chocolate are Rs. 40 and Rs. 30 respectively, and the
Marginal Utility of Chocolate is 150, what is the Marginal Utility of ice-cream assuming
that consumer is at equilibrium?
a) 112.5
b) 125
c) 200
d) 225

76. The concept of Consumer’s Surplus fails in case of articles which are used for their
prestige value, e.g. Diamonds, etc. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

77. If we make the assumption that Utility cannot be expressed in monetary terms, the
concept of Consumer’s Surplus-
a) Will still apply
b) Will not apply
c) Only Producer’s Surplus will arise
d) Nothing can be said

78. The Consumer is in equilibrium when the following condition is satisfied:

a) MUy > Px
MUy Py

b) MUx < Px
MUy Py

c) MUx = Px
MUy Py

d) None of these

79. An indifference curve shows ______ marginal rate of substitution between two
commodities.
a) Increasing
b) Decreasing
c) Constant
d) Zero

80. The Consumer is said to be ____ among different points on an IC ___

a) Indifferent
b) Interesting
c) Irrational
d) Intelligent

81. The reason for downward sloping curve__

a) Diminishing MRS
b) Increasing MRS
c) Constant MRS
d) None

82. An Indifference Curve is

a) Concave to the Origin
b) Convex to the Origin
c) Parallel to X axis
d) Parallel to Y axis

83. Which of the following is not a property of the Indifference Curve?

a) Indifference Curves are convex to the origin
b) Indifference Curves slope downwards from left to right
c) No two Indifference Curves can cut each other
d) None of the above

84. The Indifference Curve Approach does not assume__

a) Rationality on the parts of consumers
b) Ordinal Measurement of satisfaction
c) Consistent consumption pattern behaviour of consumers
d) Cardinal Measurement of Utility

85. When an Indifference Curve is L shaped, then two goods will be ___
a) Perfect Substitute Goods
b) Substitute Goods
c) Perfect Complementary goods
d) Complementary goods

86. _________ depicts complete picture of consumer’s tastes and preferences.

a) Budget Line
b) Average Cost Curve
c) Indifference Map
d) Marginal Revenue Curve

87. Utility is applicable__

a) Only for socially desirable goods (food, etc.)
b) Only for harmful goods like Liquor, Cigarettes, etc.
c) Both (a) and (b)
d) Neither (a) nor (b)

88. Utility is ethically neutral. This statement is ___

a) True
b) False
c) Partially True
d) Nothing can be said about Utility

89. Which of the following is not consumption?

a) Burning of gas when cooking of food
b) Burning of furniture in an accident of fire
c) Eating of an Ice-Cream
d) Burning of crackers on Diwali

90. Total Utility is maximum when________

a) Marginal Utility is zero
b) Marginal Utility is at its highest point
c) Marginal Utility is equal to Average Utility
d) Average Utility is maximum

91. When total utility is increases at a diminishing rate, then marginal utility is _________
a) Diminishing
b) Zero
c) Maximum
d) One

92. The Cardinal Approach to Utility Analysis assumes that Utility is measurable and
quantifiable. This means____
a) Utility can be expressed in numbers
b) Utility can be only be ranked across products
c) Utility Schedule is derived by the Consumer
d) All of the above

93. ____________ is the sum total of the Utility derived from additional units of a commodity.
a) Average Utility
b) Marginal Utility
c) Total Utility
d) Ordinal Utility

94. ______of a commodity is the additional utility derived by a consumer, by consuming one
more unit of that Commodity.
a) Total Utility
b) Marginal Utility
c) Average Utility
 d) Ordinal Utility

95. If MU of money spent on Commodity A is greater than the MU of money spent on

Commodity B, the Consumer will withdraw some money from the purchase of B, and
will spend it on A, till the MU of money in the two cases becomes equal. Which theory
says so?
a) Theory of Total Utility
b) Theory of Diminishing Marginal Utility
c) Theory of Equi-Marginal Utility
d) Theory of Diminishing Marginal Returns

96. The economic analysis expects the Consumer to behave in a _______ manner.
a) Rational
b) Irrational
c) Emotional
d) Indifferent

97. “The excess of Price which he would be willing to pay rather than go without the thing
over that which he actually does pay in the economic measure of his surplus
satisfaction” is given by
a) Alfred Marshall
b) Lionel Robbins
c) J.R. Hicks
d) Edge Worth

98. ______ is defined as the difference between what the consumer is willing to pay for a
product and what he actually pays:
a) Consumer Surplus
b) Consumer Burden
c) Optimum Price
d) Price Gap

99. The law of Consumer Surplus is based on ___

a) Law of Diminishing Marginal Utility
b) Revealed Preference Theory
c) Law of Substitution
d) All of the above

100. Suppose that the price of a new bicycle is Rs. 3,000. Nathan Values a new bicycle at Rs.
5,000. What is the value of Total Consumer Surplus if he buys a new bi-cycle?
a) Rs. 5000
b) Rs. 3000
c) Rs. 2000
d) Nil

101. If a buyer’s willingness to pay for a new car is Rs. 12,00,000, and she is able to actually
buy it for Rs. 9,00,000, her Consumer Surplus is ___
a) Rs. 12,00,000
b) Rs. 3,00,000
c) Rs. 9,00,000
d) Rs. 0

102. Suppose there are three identical vases available to be purchased. Buyer 1 is willing to
pay Rs. 30 for one, Buyer 2 is willing to pay Rs. 25 for one, and Buyer 3 is willing to pay Rs.
20 for one. If the price is Rs. 25, how many vases will be sold and what is the value of
Consumer Surplus in this market?
 a) Three vases will be sold and Consumer Surplus is Rs. 80
b) One vase will be sold and Consumer Surplus is Rs. 5
c) One vase will be sold and Consumer Surplus is Rs. 30
d) Two vases will be sold and Consumer Surplus is Rs. 5

103. Which of the following statement is not true?

a) MU is the slope of TU curve
b) MU is the rate of change of TU
c) MU cannot be negative
d) MU can become zero

104. Which of the following statements about indifference curve is not true?
a) Indifference curve shows price of 2 commodities
b) Indifference curve is convex to origin
c) Indifference curve cannot touch either of the axis
d) Two indifference curves can’t touch each other

105. Indifference Curve Approach to Utility Analysis was given by _____

a) Hicks and Allen
b) Alfred Marshall
c) Lionel Robbins
d) Adam Smith

106. According to Indifference Curve analysis, Utility can be measured in ___

a) Ranks
b) Cardinal Numbers
c) Nominal Values
d) All of the above

107. All wants of an individual are not of:

a) Equal importance
b) Immediate importance
c) Fixed importance
d) All of the above

108. Utility can be measured and quantified under_____

a) Cardinal Approach only
b) Ordinal Approach only
c) Both (a) and (b)
d) Neither (a) nor (b)

109. If we make the assumption that Utility cannot be expressed in numbers, we are
adopting__
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

110. In which approach is Utility ranked in order of preference but not measured and
quantified?
a) Cardinal
b) Ordinal
c) Independent Variables Approach
d) Both Cardinal and Ordinal
111. A Consumer consumed 3 units of a product. Marginal Utilities derived from the first
two units are Rs. 500 and Rs. 400. If the price of the product is Rs. 300 per unit and the
Consumer is in equilibrium at 3 units, the Consumer Surplus will be __
a) 300
b) 400
c) 500
d) Cannot be determined

112. Consumer Surplus is highest in the case of ___

a) Necessities
b) Luxuries
c) Comforts
d) All of the above

113. Which of the following goods give the maximum amount of Consumer Surplus?
a) Ice-Cream
b) Car
c) Colour Television
d) Water

114. Which approach suggests that Human Satisfaction is a psychological phenomenon, and
cannot be measured quantitatively in monetary terms?
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

115. Ordinal Approach to Utility analyses ___

a) One Commodity at a time
b) Two Commodities at a time
c) Many Commodities at a time
d) Does not analyse any Commodity at all

116. Consumers’ Surplus arises in respect of __

a) All quantities purchased upto Consumers’ Equilibrium level
b) All quantities purchased beyond consumers’ Equilibrium level
c) Quantities purchased at equilibrium level only
d) Nothing can be said.

117. If the value of MUx/Px is more than MUy/Py, then the Consumer__
a) Will increase the Consumption of Product X reduce Product Y
b) Will reduce the consumption of Product X and increase Product Y
c) Will consume more of Product X and Y
d) Will consume less of Product X and Y

118. Which among the following is the drawback of Consumer Surplus (as explained in
Marginal Utility analysis)?
a) It is highly hypothetical and imaginary
b) It ignores interdependence between goods
c) It cannot be measured in terms of money because Marginal Utility of money changes
d) All of the above

119. Indifference Curve Approach is also called ____

a) Ordinal Utility Analysis
b) Marshallian Approach
c) Cardinal Utility Analysis
d) All of the above

120. Indifference curve is convex slope, the reason is ____________

a) Increasing Marginal rate of substitution
b) Constant Marginal rate of substitution
c) Diminishing Marginal rate of substitution
d) None of the above

121. Indifference Curve is downward sloping__

a) Always
b) Sometimes
c) Never
d) None of these

122. Which of the following statements is incorrect?

a) An Indifference Curve must be downward-sloping to the right
b) Convexity of a Curve implies that the slope of the curve diminishes as one moves from
left to right.
c) The Elasticity of Substitution between two goods to a Consumer is zero
d) The total effect of a change in the price of a good on its quantity demanded is called the
Price Effect.

123. Which of the following is not an assumption of the Theory of Demand based on
analysis of Indifference Curves?
a) Given scale of preferences as between different combinations of two goods
b) Diminishing Marginal Rate of Substitution
c) Constant Marginal Utility of money
d) Consumers would always prefer more of a particular good to less of it, other things
remaining the same.

124. Indifference Curve approach assumes-

a) Rationality
b) Consistency
c) Transitivity
d) All of the above

125. Indifference Curve approach deals with ____

a) One Commodity only
b) Two Commodity at a time
c) Many Commodities at a time
d) No Commodities at all

126. A __________ shows all those combinations of two goods which the consumer can buy
spending his given money income on the two goods at their given price.
a) Diminishing Utility Curve
b) Budget Line
c) Indifference Curve
d) Demand Curve

127. Which of the following Utility approaches suggest that Utility can be measured and
quantified?
a) Cardinal
b) Ordinal
c) Both Cardinal and Ordinal
d) Neither approach makes such suggestion
128. Which one of the following assumption is not necessary for the Cardinal Utility
Theory?
a) Rationally of the Consumer
b) Constant Marginal Utility of Money
c) Perfectly Competitive Market
d) Additivity of Utility

129. The Total Utility that Shyam derives after having 4 mangoes is 10, and the Total Utility
on consuming 5 Mangoes is 9. What is the Marginal Utility for 5th mango?
a) 1
b) 0
c) -1
d) ±1

130. Total Utility derived by Ram by eating 6 Apples is 300. Marginal Utility of the 7th Apple
is 30. What will be the Total Utility for 7 Apples?
a) 330
b) 270
c) 300
d) 30

131. Utility obtained from tea may be affected if no sugar is available. This statement is ____
a) True
b) False
c) Partially True
d) Nothing can be said about Utility

132. The Consumer will attain maximum satisfaction, and will be in equilibrium when MU of
money spent on various goods that he buys, are ___
a) Zero
b) Decreasing
c) Increasing
d) Equal

133. The Consumer will attain maximum satisfaction, and will be ____ when MU of money
spent on various goods that he buys, are equal.
a) Irrational
b) In equilibrium
c) Rational
d) In happiness

134. Under Marginal Utility analysis, Utility is assumed to be a ________

a) Cardinal Concept
b) Ordinal Concept
c) Indeterminate Concept
d) Infinite Concept

135. Marshallian utility analysis is known as ____________analysis.

a) Paul Samuelson
b) Hicks
c) Keynes
d) Marshall

136. Who is the main exponent of Marginal Utility Analysis?

a) Paul Samuelson
b) Hicks
c) Keynes
d) Marshall

137. As per the assumption to the Law of Diminishing Marginal Utility, in case of money,
gold, etc. a greater quantity may _____
a) Increase the lust and utility thereof
b) Decrease the lust and utility thereof
c) Not affect utility at all
d) Nothing can be said

138. Utility may be affected by the presence or absence of

a) Substitute Goods
b) Complementary Goods
c) Both (a) and (b)
d) Neither (a) nor (b)

139. A Buyer’s willingness to pay is that Buyer’s ___

a) Minimum amount he is willing to pay for a product
b) Producer Surplus
c) Consumer Surplus
d) Maximum Amount he is willing to pay for a product

140. The Consumer is in equilibrium when Marginal Utility from a Commodity equals__
a) Demand for that Commodity
b) Supply of that Commodity
c) Price of the Commodity
d) All of the above

141. If the Price paid is more than the additional satisfaction derived from that item, the
Consumer will
a) Continue buying the item
b) Stop buying the item
c) Will start selling the item
d) Nothing can be said

142. Consumer stops purchasing the additional units of the commodity when___
a) Marginal Utility starts declining
b) Marginal Utility become zero
c) Marginal Utility is equal to Marginal Utility of Money
d) Total Utility is increasing

143. Consumer’s Surplus left with the consumer under Price Discrimination is ___
a) Maximum
b) Minimum
c) Zero
d) Not predictable

144. A Monopolist will try to Consumer’s Surplus to his advantage by adopting__

a) Price Rigidity
b) Price Exploitation
c) Price Discrimination
d) Price Equilibrium

145. Which of the following statements regarding Ordinal Utility of true?

a) Utility can be measured, but cannot be ranked in order of preferences
b) Utility can neither be measured nor be ranked in order of preferences
c) Utility can be measured and also be ranked in order of preferences
d) Utility cannot be measured, but can be ranked in order of preferences

146. Ordinal Utility Approach is also called__

a) Cardinal Utility Analysis
b) Hicks and Allen Approach
c) Marshallian Approach
d) All of the above

147. Marginal Utility Approach to demand was given by

a) J.R. Hicks
b) Alfred Marshall
c) Robbins
d) A.C. Pigou

148. According to Marginal Utility analysis, Utility can be measured in ________

a) Ranks
b) Cardinal Numbers
c) Nominal Values
d) All of the above

149. Cardinal Measure of Utility is required in_

a) Marginal Utility Theory
b) Indifference Curve Theory
c) Revealed Preference Theory
d) None of the above

150. The Law of Diminishing Marginal Utility will not hold good if the Income of the
Consumer___
a) Increases
b) Decreases
c) Remains constant
d) Both (a) and (b)

151. The Law of Diminishing Marginal Utility is based on the assumption that the habits and
tastes of the consumer______
a) Must remain unchanged
b) Changes in the short run
c) Both (a) and (b)
d) Nothing can be said

152. If customers’ taste or liking for an item increases with additional consumption, then
the Law of Diminishing Marginal Utility will still hold good. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

153. The Consumer will attain maximum satisfaction, and will be in equilibrium when ___
that he buys, are equal.
a) MU of different goods
b) MU of money as such
c) MU of money spent on various goods
d) All of the above
154. Indifference Curve slopes-
a) Downward to the right
b) Upward to the right
c) Downward to the left
d) Upward to the left

155. If two goods were perfect substitutes of each other, it means that the Indifference
Curve relating to the two goods__
a) Will be curvilinear
b) Will be linear
c) Will be divided into two segments which meet at a right angle
d) Will be convex to the origin.

156. An Indifference Map can also be drawn such that two Indifference Curves cut each
other. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

157. Budget Line is also called ______

a) Price Line
b) Price Opportunity Line
c) Price – Income Line
d) All of the above

158. As per Indifference Curve Analysis, to maximise his satisfaction, a Consumer will try
to __
a) Remain in the same IC
b) Reduce to a lower IC
c) Reach the highest possible IC
d) Reach the Origin Point

159. What will be the Marginal Utility of Product A, if the prices of A and B are Rs. 10 and Rs.
20 respectively, and the Marginal Utility of Product B is 50, assuming that the Consumer
is at equilibrium?
a) Rs. 100
b) Rs. 25
c) Rs. 250
d) Rs. 4

160. The Marginal Utilities of Product A and Product B are 300 and 450 at equilibrium
respectively. If the price of the product B is Rs. 60, what is the price of product A at
equilibrium level?
a) Rs. 45
b) Rs. 90
c) Rs. 40
d) Rs. 50

161. In Consumer Equilibrium analysis under Indifference Curve Approach, the Consumer is
assumed to spend his income ____ on two goods.
a) Partly
b) Wholly
c) Either (a) or (b)
d) Nothing can be said
162. Indifference curve slopes downwards as one product increase and another decreases
because they give.
a) Equal satisfaction
b) Greater Satisfaction
c) Lesser Satisfaction
d) None

163. If we make the assumption that utility can be expressed in numbers, we are adopting __
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

164. The 2nd glass of Lemon Juice gives lesser satisfaction to a thirsty person. This is a case
of
a) Law of Demand
b) Law of Diminishing Returns
c) Law of Diminishing Utility
d) Law of Supply

165. The Law of Diminishing Marginal Utility states that the more a consumer consumes a
product, he derives lower utility from____
a) Additional consumption
b) Lower consumption
c) No extra consumption
d) Infinite consumption

166. Which of the approaches dispenses with the Money Measurement Concept for Utility?
a) Cardinal Approach
b) Ordinal Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

167. Consumer Surplus is the area__

a) Below the Demand Curve and above the price
b) Above the Supply Curve and below the price
c) Above the Demand Curve and below the price
d) Below the Supply Curve and above the price

168. The concept of Consumer Surplus arises due to the reason that-
a) Mu is initially higher than price
b) Mu is always equal to Price
c) Mu is initially lower than Price
d) MU is always equal to Zero

169. __________ Consumer Surplus indicates higher level of efficiency in the economy.
a) Higher
b) Lower
c) Balanced
d) Negative

170. ______________is helpful in designing Government policies and implementing welfare

programs.
a) Law of Diminishing Returns
b) Law of Equi-Marginal Utility
c) Consumer Surplus
d) Income and Substitution Effects

171. In an indifference curve analysis, the consumer attains equilibrium at a point where
the marginal rate of substitution is ____________ the price ratio Px/Py
a) Greater than
b) Less than
c) Equal to
d) Not related to

172. All points on the same Indifference Curve represents

a) Equal satisfaction
b) Same satisfaction
c) Similar satisfaction
d) All of the above

173. Under Indifference Map, even though higher levels of satisfaction are identified, it
cannot be quantified as such. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

174. Higher the Indifference Curve is from the origin, then ____
a) The higher is the satisfaction level
b) The lower is the satisfaction level
c) The same satisfaction level will be obtained
d) Nothing can be said about satisfaction

175. Generally, MRS shows ___

a) Increasing trend
b) Decreasing trend
c) Constant trend
d) No trend at all

176. If a combination is below the Price Line, it indicates that there is __

a) Under Utilization of Resources
b) Over Utilization of Resources
c) Optimum utilization of Resources
d) None of the above

177. As Consumers’ Income and Spending increases, the Price Line or Budget Line__
a) Remains at the same level
b) Shifts outward away from the origin
c) Shifts inward nearer to the origin
d) Any of the above

178. At the equilibrium point on Indifference Curve which of the following equation is
satisfied?
a) MRSxy = MUx /MUy <Px / Py
b) MRSxy < MU/MUy = Px / Py
c) MRSxy = MUx / MUy = Px/Py
d) None of the above

179. Under Income Effect, the Consumer__

a) Moves along the original Indifference Curve
b) Moves to higher or lower Indifference Curve
c) Always purchases higher quantities of both the commodities
d) None of the above.

180. Which of the following is not an assumption in Consumer Equilibrium analysis under
Indifference Curve Approach?
a) There is a given Indifference Map with different levels of satisfaction
b) Income of the Consumer is fixed
c) Prices of Commodities are constant
d) Only one Commodity is considered for the purpose of analysis

181. MUx of X is 40 and MUy of Y is 30. It the price of Y is Rs. 9 What will be the price of X at
equilibrium?
a) Rs. 9
b) Rs. 30
c) Rs. 15
d) Rs. 12

182. Why does the Indifference Curve Analysis approach operate?

a) MRS decrease as we go down the Curve
b) MRS remains constant
c) MRS increases
d) Consumer Surplus decreases

183. In the context of Indifference Curve Analysis, MRS stands for ___
a) Marginal Rate of Substitution
b) Marginal Rate of Satisfaction
c) Marginal Return of Substitution
d) Marginal Return of Satisfaction

184. Combinations lying on a higher Indifference Curve contain more of ___

a) One commodity only
b) Both commodities
c) Either (a) or (b)
d) Neither (a) nor (b)

185. Which of the following statements regarding Indifference Curve is not true?
a) An Indifference Curve always has a positive slopes
b) Indifference Curve slopes downward to the right
c) Two Indifference Curves intersect each other at equilibrium
d) Higher level of Indifference Curve shows higher level of Utility

186. An Indifference Curve represents all those combinations of goods which gives___
a) No satisfaction to the Consumer
b) Lower satisfaction to the Consumer
c) Higher satisfaction to the Consumer
d) Equal satisfaction to the Consumer

187. Ordinal Utility Approach is also known as ___

a) Marginal Utility Analysis
b) Indifference Curve Analysis
c) Marshallian Approach
d) All of the above

188. In case of two or more products, a Consumer reaches equilibrium when__

a) MUx/Px = MUy/Py
b) MUx x Px = MUy x Py
c) MUx + PX = MUy + Py
d) MUx/Py = MUy/Px

189. Consumer Surplus means__

a) The area inside the Budget Line
b) The area between the Average Revenue and Marginal Revenue curves
c) The difference between the maximum amount a person is willing to pay for a good and
its market price.
d) None of the above

190. Marginal Utility of a commodity depends on its quantity and is _______

a) Inversely proportional to its quantity
b) Not proportional to its quantity
c) Independent of its quantity
d) None of the above

191. Under Cardinal Approach to Utility, _______ is the measuring rod of Utility.
a) Customer Satisfaction
b) Relative Preference
c) Money
d) All of the above

192. Which of the following is an assumption under Cardinal Approach to Utility Analysis?
a) Measurability of Utility in monetary terms
b) Change in Marginal Utility of Money
c) Utility arises even at zero consumption
d) All of the above

193. Which of the following is not an assumption under Cardinal Approach to Utility
Analysis?
a) Utilities of goods are independent of one another
b) Marginal Utility of Money is constant
c) Utility is comparable across goods
d) Utility cannot be measured, but only ranked

194. Which of the following is an assumption of Law of the Law of Diminishing Marginal
Utility?
a) Perfect Competition
b) Continuous Consumption
c) Constant Demand
d) Ordinal Approach to Utility

195. Consumer is in equilibrium and he keeps purchasing till the point ___
a) Marginal Utility = Price
b) Marginal Utility = Zero
c) Marginal Utility = Negative
d) Marginal Utility = Quantity

196. The concept of Consumer Surplus arises due to the reason that __
a) MU increases but Price remains constant
b) Mu increases but Price decreases
c) MU declines but Price remains constant
d) MU declines but Price increases

197. In case of necessaries, the Marginal Utilities of the first few units are__
a) Infinite
b) Zero
c) There is no Marginal Utility at all
d) Nothing can be said

198. Ordinal Utility Approach is also known as ___

a) Indifference Curve Analysis
b) Hicks and Allen Approach
c) Both (a) and (b)
d) Neither (a) nor (b)

199. Which of the following is a property of an Indifference Curve?

a) It is convex to the origin
b) The Marginal Rate of Substitution is constant as one moves along an Indifference Curve
c) Marginal Utility is constant as one move along an Indifference Curve
d) Total Utility is greatest where the 45 degree line cuts the Indifference Curve

200. MRS is indicated by _________

a) Slope of an IC at a particular point
b) Angle between IC and X Axis
c) Angle between IC and Y Axis
d) None of the above

201. A Point below the Price Line represents__

a) Over- spending by the Consumer
b) Under- spending by the Consumer
c) Full spending by the Consumer
d) Any of the above

202. To Consumer’s objective of maximising his satisfaction and reaching the highest
possible Indifference Curve is restricted by __
a) Total Utility Curve
b) Marginal Utility Curve
c) Marginal Rate of Substitution
d) Price Line

203. The Consumer is in Equilibrium at a point where the Budget Line__

a) Is above an Indifference Curve
b) Is below an Indifference Curve
c) Is tangent to an Indifference Curve
d) Cuts an Indifference Curve

204. A the point of Consumer’s Equilibrium_

a) Consumers’ Surplus is positive
b) Consumers’ Surplus is zero
c) Consumers’ Surplus is negative

205. Any of these Marginal Utility = Additional Utility derived by consuming ____ additional
unit of a commodity.
a) One
b) Unit
c) Single
d) All of the above

206. The Total Utility derived by Ram by consuming 10 cups of Coffee is 99, whereas the
total utility on consumption of 11th Cup is 95. What is the Marginal Utility for 11th Cup of
Coffee?
a) -4
b) 4
c) 9
d) –3

207. The concept of Consumer Surplus arises since for all earlier units purchased (i.e. prior
to equilibrium point)
a) MU<Price
b) MU= Price
c) MU>Price
d) MU = Zero

208. The Consumer’s Surplus derived from a product is _____ by the availability of
substitutes.
a) Not affected
b) Affected
c) Nothing can be said
d) Substitutes are not available at all

209. The concept of Consumer’s Surplus is based on the assumption that Marginal Utility of
Money is
a) Zero
b) Negative
c) Constant
d) Any of the above

210. The concept of Consumer’s Surplus adopts__

a) Cardinal Approach only
b) Ordinal Approach only
c) Both (a) and (b)
d) Neither (a) nor (b)

211. When two goods are perfect substitutes of each other, the Indifference Curve is a ___
a) Straight Line on which MRS is constant
b) Straight Line on which MRS is increasing
c) Concave on which MRS is diminishing
d) Convex on which MRS is constant

212. In the case of two perfect substitutes, the indifference curve will be:
a) Straight Line
b) L-shaped
c) U-shaped
d) C-shaped

213. Decreasing Trend of MRS makes the Indifference Curve ___

a) Concave to the Origin
b) Convex to the Origin
c) Parallel to X Axis
d) Parallel to Y Axis

214. If marginal rate of substitution is increasing then shape of indifference curve is ____
a) Concave
b) Convex
c) L-shape
d) None of these
215. A Consumer is at equilibrium when ___
a) Slope of the Price Line is equal to Indifference Curve
b) He saves 30% of his Income
c) Borrows an amount equal to his income from the Bank
d) None of the above

216. At the equilibrium point on Indifference Curve which of the following equation is
satisfied?
a) MRSxy = MUx = Px
MUy Py
b) MUx = MUy
Px Py

c) Both (a) and (b)

d) Neither (a) nor (b)

217. Which of the following is an assumption of law of the law of Diminishing Marginal
Utility?
a) Perfect Competition
b) Cardinal Approach to Utility
c) Constant Demand
d) Constant Marginal Utility of Money

218. The Law of Equi-Marginal Utility applies because__

a) The Consumer will try to maximize his satisfaction
b) There may be substitutes available in the market for every product.
c) Consumer will substitute one item for the other such that his MU>Price.
d) All of the above

219. From which of the following the concept of consumer’s surplus has been derived__
a) Law of diminishing marginal utility
b) Law of demand
c) Law of supply
d) Indifference curve analysis

220. In the concept of Consumer’s Equilibrium and Consumer’s Surplus for the quantity
purchased at the equilibrium level__
a) Consumers’ Surplus is positive
b) Consumers’ Surplus is zero
c) Consumers’ Surplus is negative
d) Any of these

221. In the concept of Consumer’s Equilibrium and Consumer’s Surplus, for the quantity
purchased at the equilibrium level, Marginal Utility is ___
a) Positive
b) Zero
c) Negative
d) Equal to Price

222. For the quantity purchased at the Consumer’s Equilibrium level, is __

a) Marginal Utility = Price
b) Consumers’ Surplus is zero
c) Both (a) and (b)
d) Neither (a) nor (b)
223. Consumer surplus in case of necessary commodities:
a) Zero
b) One
c) Infinite
d) None of these

224. When price increases from Rs. 200 to Rs. 300 and supply increases from 2000 units to
5000 units then calculate elastic of supply?
a) 3
b) 0.3
c) 4
d) 0.4

225. In Indifference Curve Analysis, the Customers’ preferences are __

a) Ranked/arranged in preference order
b) Measured in terms of money
c) Both (a) and (b)
d) Neither (a) nor (b)

226. ____ shows various combinations of two products that give same amount of satisfaction.
a) Is cost curve
b) Indifference Curve
c) Marginal Utility Curve
d) Isoquant Curve

227. Indifference Curve has ____

a) Positive slope
b) Negative slope
c) No slope at all
d) Nothing can be said

228. ______have a negative slope and cannot intersect each other.

a) Demand and Supply Curves
b) Isoquants
c) Indifference Curves
d) Both (b) and (c)

229. An Indifference Curve slopes down towards right, since more of one commodity and
less of another result in ___
a) Same satisfaction
b) Greater satisfaction
c) Maximum satisfaction
d) Decreasing expenditure

230. The general assumption in Consumer Behaviour under Indifference Curve Analysis is
that more goods are preferred to less of them. This statement is ___
a) True
b) False
c) Partially True
d) Nothing can be said

231. ____________indicates how much of one commodity is substituted for how much of
another commodity.
a) Marginal Utility
b) Marginal Returns
c) Marginal Rate of Substitution
d) Marginal Income

232. MRS indicates movement_____

a) From lower IC to higher IC
b) From higher IC to lower IC
c) Along an IC
d) Any of the above

233. In order to get maximum satisfaction, the consumer has to work under some
constraints. These constraints are explained by___
a) Price Line
b) Budget Line
c) Both (a) and (b)
d) Neither (a) nor (b)

234. Price Line is also called ___

a) Budget Line
b) Budget Constraint Line
c) Both (a) and (b)
d) Neither (a) nor (b)

235. The price line/Budget lint of a consumer is ___

a) Parallel to X –axis
b) Parallel to Y –axis
c) Straight line joining two axis
d) None of the above

236. Every Point below the Price Line represents___

a) Over-spending by the Consumer
b) Under-spending by the Consumer
c) Full-spending by the Consumer
d) Any of the above

237. Budget Line shows all the combinations of ____ products.

a) Two
b) Three
c) Many
d) None of the above

(*)(*)(*)(*)