Chapter MCQ Test 2 — Consumer's Equilibrium
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
After eating four chocolates, the fifth gives almost no extra pleasure. This everyday experience illustrates the law of:
Diminishing marginal utility
Supply
Equi-marginal returns to scale
Demand
Explanation: Each additional unit yields less extra satisfaction — diminishing marginal utility.
Question 2 of 10
If TU values are 10, 18, 24, 28, 30, the marginal utility of the 4th unit is:
4
28
6
2
Explanation: MU of 4th unit = TU₄ − TU₃ = 28 − 24 = 4.
Question 3 of 10
A consumer finds the last rupee spent on tea gives more satisfaction than the last rupee on coffee. To maximise satisfaction he should:
Spend more on tea and less on coffee
Spend more on coffee
Stop buying both
Do nothing
Explanation: He shifts spending toward tea (higher MU per rupee) until MUₜ/Pₜ = MU_c/P_c.
Question 4 of 10
Water is cheap though very useful, while diamonds are dear though less useful. This paradox is explained by:
The low marginal utility of abundant water vs high MU of scarce diamonds
Total utility alone
The budget line
Inflation
Explanation: Price reflects marginal, not total, utility: abundant water has low MU, scarce diamonds high MU.
Question 5 of 10
Two points on the SAME indifference curve must give the consumer:
Equal total satisfaction
Different satisfaction
Zero satisfaction
Equal prices
Explanation: By definition, every point on one IC yields the same total satisfaction.
Question 6 of 10
If the consumer's income rises (prices unchanged), the budget line:
Shifts outward, parallel to the old one
Rotates only
Stays fixed
Disappears
Explanation: More income lets him afford more of both goods, shifting the budget line outward without changing its slope.
Question 7 of 10
At the 5th unit MU = 0 and TU is maximum. Consuming a 6th unit with negative MU would:
Reduce total utility
Raise total utility
Leave TU unchanged
Double TU
Explanation: Negative marginal utility means extra consumption now lowers total satisfaction.
Question 8 of 10
The downward slope of an indifference curve means that to keep satisfaction unchanged the consumer must:
Give up some of one good to get more of the other
Buy more of both goods
Spend nothing
Keep both goods fixed
Explanation: Gaining one good while staying equally satisfied requires sacrificing some of the other — hence the downward slope.
Question 9 of 10
The indifference curve approach is considered superior partly because it only requires the consumer to:
Rank combinations, not measure utility in numbers
Count money exactly
Know all prices forever
Measure utility in units
Explanation: It needs only ordinal ranking of preferences, avoiding the unrealistic cardinal measurement of utility.
Question 10 of 10
A combination of goods lying ABOVE (outside) the budget line is one the consumer:
Cannot afford with the given income
Always buys
Is indifferent to
Produces
Explanation: Points beyond the budget line cost more than the consumer's income allows.