Consumer Behaviour and Utility Theory MCQs 2026

Convexity of preferences reflects

1. Alove of extremes only✓
2. Blinear ICs only✓
3. Cpreference for averages over extremes (diminishing MRS)✓
4. Drisk loving always✓

Monotonicity of preferences means

1. Aless is always better✓
2. Bbundles are identical✓
3. Cprices do not matter✓
4. Dmore is better (nonsatiation)✓

The dual of expenditure minimization is

1. Aprofit maximization only✓
2. Bcost minimization of firms only✓
3. CPPF expansion✓
4. Dutility maximization subject to budget✓

Hicksian demand holds

1. Autility constant while prices change✓
2. Bincome constant in nominal terms only✓
3. CMU constant always✓
4. Dsupply fixed✓

Marshallian demand holds

1. Autility constant always✓
2. Breal income constant by construction always✓
3. CMRS fixed✓
4. Dmoney income constant while prices change✓

Slutsky equation decomposes

1. Asupply into MC and AC✓
2. BGDP into C+I+G✓
3. Cprice effect into substitution and income effects✓
4. Delasticity into arc and point only✓

A risk-averse consumer's indifference over wealth shows

1. Aconvex utility of wealth✓
2. Blinear always implying risk loving✓
3. Czero MU of money✓
4. Dconcave utility of wealth (diminishing MU of money)✓

Bandwagon effect means demand rises because

1. Aprice equals MC✓
2. BMU is negative✓
3. Csupply is fixed✓
4. Dothers are consuming the good✓

Marginal utility is

1. Atotal utility divided by income✓
2. Bthe additional utility from consuming one more unit✓
3. Caverage price✓
4. Dfixed cost✓

Utility in economics means

1. Asatisfaction or want-satisfying power of a good✓
2. Bonly money income✓
3. Conly physical weight✓
4. Donly market price✓

Cardinal utility theory assumes that

1. Autility cannot be compared✓
2. Bindifference curves do not exist✓
3. Cprices are irrelevant✓
4. Dutility is measurable in utils✓

Ordinal utility theory holds that

1. Autility must be additive in numbers✓
2. BMU is always constant✓
3. Cbudget lines are unnecessary✓
4. Dconsumers can rank bundles without measuring utils✓

Total utility is

1. Athe extra satisfaction from one more unit✓
2. Balways equal to price✓
3. Cthe total satisfaction from consuming a given quantity✓
4. Dalways zero✓

The law of diminishing marginal utility states that

1. AMU always rises✓
2. BMU falls as consumption of a good increases, ceteris paribus✓
3. CTU always falls from the first unit✓
4. Dprice equals average cost✓

A rational consumer in cardinal theory equates

1. Atotal utility of all goods to zero✓
2. Bprice to average utility only✓
3. CMU to infinity✓
4. DMU per rupee across goods (MU/P equalized)✓

Consumer equilibrium (cardinal) requires

1. AMUx = MUy regardless of prices✓
2. BMUx/Px = MUy/Py✓
3. CPx = Py always✓
4. DTU maximized at zero consumption✓

An indifference curve shows

1. Acombinations of two goods yielding the same utility✓
2. Bonly income levels✓
3. Conly prices✓
4. Donly costs of firms✓

Indifference curves are usually

1. Adownward sloping and convex to the origin✓
2. Bupward sloping✓
3. Cvertical lines✓
4. Dcircles around the origin✓

Higher indifference curves represent

1. Alower utility✓
2. Bidentical utility always✓
3. Czero income✓
4. Dhigher levels of satisfaction✓

Indifference curves cannot intersect because

1. Aintersection would violate consistent ranking of preferences✓
2. Bprices would become negative✓
3. Csupply would vanish✓
4. DGDP would fall✓

The marginal rate of substitution (MRS) is

1. Athe slope of the budget line only✓
2. Bthe firm's MC✓
3. Cthe rate at which a consumer will trade one good for another while keeping utility constant✓
4. Dthe tax rate✓

Diminishing MRS means

1. AMRS rises forever✓
2. Bthe consumer gives up less of Y for extra X as X increases✓
3. CICs become concave always✓
4. Dprices fall automatically✓

The budget line shows

1. Aaffordable combinations of two goods given income and prices✓
2. Bonly utility levels✓
3. Conly production sets✓
4. Donly isoquants✓

A rise in money income, prices constant, shifts the budget line

1. Ainward parallel always✓
2. Brotates only on one axis always✓
3. Coutward parallel✓
4. Dunchanged✓

A fall in the price of good X, income and Py constant, causes the budget line to

1. Ashift parallel inward✓
2. Bpivot outward on the X-axis✓
3. Cbecome vertical✓
4. Ddisappear✓

Consumer optimum with convex preferences is where

1. AIC cuts the budget line twice always✓
2. Bthe indifference curve is tangent to the budget line✓
3. CMU is zero for all goods✓
4. Dprice equals ATC✓

At the tangency optimum

1. AMRS is infinite✓
2. BMRS equals zero always✓
3. Cincome equals zero✓
4. DMRS equals the price ratio Px/Py✓

The income effect of a price fall is

1. Athe change due only to relative prices holding utility constant✓
2. Balways negative for normal goods✓
3. Cthe change in consumption due to higher real income✓
4. Didentical to substitution effect always✓

The substitution effect of a price fall is

1. Athe change in consumption due to relative price change, holding utility constant✓
2. Balways increasing inferior goods only✓
3. Cthe entire observed change always✓
4. Dzero for all goods✓

For a normal good, income and substitution effects of a price fall

1. Aboth decrease quantity✓
2. Bboth increase quantity demanded✓
3. Ccancel exactly always✓
4. Dare undefined✓

For an inferior good, the income effect of a price fall

1. Aalways dominates to create Giffen behaviour✓
2. Bis always zero✓
3. Craises demand more than luxuries✓
4. Dreduces quantity demanded, opposing the substitution effect✓

A Giffen good is an inferior good for which

1. Asubstitution effect is zero✓
2. Bit is always a luxury✓
3. Cthe income effect outweighs the substitution effect, so demand slopes up✓
4. Dcross elasticity is positive✓

Corner solution in consumer theory means

1. Atangency always exists interior✓
2. Bthe consumer buys zero of one good✓
3. CMRS equals price ratio interior always✓
4. Dbudget is unused✓

Perfect substitutes have indifference curves that are

1. Astraight lines✓
2. BL-shaped✓
3. Ccircles✓
4. Dupward sloping✓

Perfect complements have indifference curves that are

1. AL-shaped (right-angled)✓
2. Bstraight lines with positive slope✓
3. Csmooth and linear always✓
4. Dvertical only✓

The Engel curve relates

1. Aprice to quantity only✓
2. BMC to AC✓
3. Cquantity demanded of a good to income✓
4. Dwage to labour supply only✓

Revealed preference theory is associated with

1. AMarshall only✓
2. BRicardo only✓
3. CSamuelson✓
4. DMalthus only✓

Water-diamond paradox is resolved by distinguishing

1. Asupply only from demand✓
2. Btotal utility versus marginal utility✓
3. Ccardinal from ordinal without MU✓
4. Dshort run from long run costs✓

Consumer surplus under cardinal approach equals

1. Aproducer surplus✓
2. Barea under demand above price✓
3. Ctotal cost✓
4. Dtax revenue✓

A lump-sum tax on the consumer

1. Ashifts the budget line inward parallel✓
2. Brotates the budget line on one axis only✓
3. Cshifts ICs✓
4. Dchanges relative prices✓

An ad valorem tax on good X

1. Asteepens or pivots the budget line by raising effective Px✓
2. Bleaves relative prices unchanged✓
3. Cshifts ICs outward✓
4. Deliminates scarcity✓

Quasi-linear preferences imply

1. Aalways Giffen behaviour✓
2. Bupward demand always✓
3. Cno income effect for the non-numeraire good✓
4. Dzero MU✓

The bliss point (satiation) would make ICs

1. Aalways linear✓
2. Balways L-shaped without satiation✓
3. Cupward forever✓
4. Dclosed curves around the bliss point✓

Weak axiom of revealed preference (WARP) requires that

1. Aif A is chosen when B is affordable, B should not be chosen when A is affordable✓
2. Bprices never change✓
3. Cutility is cardinal✓
4. DMRS is constant✓

Marginal utility of money (λ) in Marshallian theory is often assumed

1. Aconstant✓
2. Binfinite✓
3. Czero✓
4. Dnegative always✓

As consumption of a good rises, total utility

1. Aalways falls✓
2. Brises as long as MU is positive✓
3. Cequals MU always✓
4. Dis independent of quantity✓

When MU becomes negative

1. ATU is maximized further✓
2. Bprice must rise✓
3. Ctotal utility declines (disutility from extra units)✓
4. Dbudget expands✓

The price consumption curve traces

1. Aonly income changes✓
2. Bonly firm output✓
3. Coptimal bundles as the price of one good changes✓
4. Donly isoquants✓

The income consumption curve traces

1. Aonly price changes✓
2. Boptimal bundles as income changes, prices fixed✓
3. CMC=MR points✓
4. DPPF points✓

Two goods are independent in consumption if

1. Athey are perfect substitutes✓
2. Bcross elasticity is zero✓
3. Cthey are perfect complements✓
4. DMRS is infinite✓