Consumer Behaviour and Utility Theory MCQs 2026

Two goods are independent in consumption if

1. A they are perfect substitutes ✓
2. B cross elasticity is zero ✓
3. C they are perfect complements ✓
4. D MRS is infinite ✓

Convexity of preferences reflects

1. A love of extremes only ✓
2. B linear ICs only ✓
3. C preference for averages over extremes (diminishing MRS) ✓
4. D risk loving always ✓

Monotonicity of preferences means

1. A less is always better ✓
2. B bundles are identical ✓
3. C prices do not matter ✓
4. D more is better (nonsatiation) ✓

The dual of expenditure minimization is

1. A profit maximization only ✓
2. B cost minimization of firms only ✓
3. C PPF expansion ✓
4. D utility maximization subject to budget ✓

Hicksian demand holds

1. A utility constant while prices change ✓
2. B income constant in nominal terms only ✓
3. C MU constant always ✓
4. D supply fixed ✓

Marshallian demand holds

1. A utility constant always ✓
2. B real income constant by construction always ✓
3. C MRS fixed ✓
4. D money income constant while prices change ✓

Slutsky equation decomposes

1. A supply into MC and AC ✓
2. B GDP into C+I+G ✓
3. C price effect into substitution and income effects ✓
4. D elasticity into arc and point only ✓

A risk-averse consumer's indifference over wealth shows

1. A convex utility of wealth ✓
2. B linear always implying risk loving ✓
3. C zero MU of money ✓
4. D concave utility of wealth (diminishing MU of money) ✓

Bandwagon effect means demand rises because

1. A price equals MC ✓
2. B MU is negative ✓
3. C supply is fixed ✓
4. D others are consuming the good ✓

Marginal utility is

1. A total utility divided by income ✓
2. B the additional utility from consuming one more unit ✓
3. C average price ✓
4. D fixed cost ✓

Utility in economics means

1. A satisfaction or want-satisfying power of a good ✓
2. B only money income ✓
3. C only physical weight ✓
4. D only market price ✓

Cardinal utility theory assumes that

1. A utility cannot be compared ✓
2. B indifference curves do not exist ✓
3. C prices are irrelevant ✓
4. D utility is measurable in utils ✓

Ordinal utility theory holds that

1. A utility must be additive in numbers ✓
2. B MU is always constant ✓
3. C budget lines are unnecessary ✓
4. D consumers can rank bundles without measuring utils ✓

Total utility is

1. A the extra satisfaction from one more unit ✓
2. B always equal to price ✓
3. C the total satisfaction from consuming a given quantity ✓
4. D always zero ✓

The law of diminishing marginal utility states that

1. A MU always rises ✓
2. B MU falls as consumption of a good increases, ceteris paribus ✓
3. C TU always falls from the first unit ✓
4. D price equals average cost ✓

A rational consumer in cardinal theory equates

1. A total utility of all goods to zero ✓
2. B price to average utility only ✓
3. C MU to infinity ✓
4. D MU per rupee across goods (MU/P equalized) ✓

Consumer equilibrium (cardinal) requires

1. A MUx = MUy regardless of prices ✓
2. B MUx/Px = MUy/Py ✓
3. C Px = Py always ✓
4. D TU maximized at zero consumption ✓

An indifference curve shows

1. A combinations of two goods yielding the same utility ✓
2. B only income levels ✓
3. C only prices ✓
4. D only costs of firms ✓

Indifference curves are usually

1. A downward sloping and convex to the origin ✓
2. B upward sloping ✓
3. C vertical lines ✓
4. D circles around the origin ✓

Higher indifference curves represent

1. A lower utility ✓
2. B identical utility always ✓
3. C zero income ✓
4. D higher levels of satisfaction ✓

Indifference curves cannot intersect because

1. A intersection would violate consistent ranking of preferences ✓
2. B prices would become negative ✓
3. C supply would vanish ✓
4. D GDP would fall ✓

The marginal rate of substitution (MRS) is

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

Diminishing MRS means

1. A MRS rises forever ✓
2. B the consumer gives up less of Y for extra X as X increases ✓
3. C ICs become concave always ✓
4. D prices fall automatically ✓

The budget line shows

1. A affordable combinations of two goods given income and prices ✓
2. B only utility levels ✓
3. C only production sets ✓
4. D only isoquants ✓

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

1. A inward parallel always ✓
2. B rotates only on one axis always ✓
3. C outward parallel ✓
4. D unchanged ✓

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

1. A shift parallel inward ✓
2. B pivot outward on the X-axis ✓
3. C become vertical ✓
4. D disappear ✓

Consumer optimum with convex preferences is where

1. A IC cuts the budget line twice always ✓
2. B the indifference curve is tangent to the budget line ✓
3. C MU is zero for all goods ✓
4. D price equals ATC ✓

At the tangency optimum

1. A MRS is infinite ✓
2. B MRS equals zero always ✓
3. C income equals zero ✓
4. D MRS equals the price ratio Px/Py ✓

The income effect of a price fall is

1. A the change due only to relative prices holding utility constant ✓
2. B always negative for normal goods ✓
3. C the change in consumption due to higher real income ✓
4. D identical to substitution effect always ✓

The substitution effect of a price fall is

1. A the change in consumption due to relative price change, holding utility constant ✓
2. B always increasing inferior goods only ✓
3. C the entire observed change always ✓
4. D zero for all goods ✓

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

1. A both decrease quantity ✓
2. B both increase quantity demanded ✓
3. C cancel exactly always ✓
4. D are undefined ✓

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

1. A always dominates to create Giffen behaviour ✓
2. B is always zero ✓
3. C raises demand more than luxuries ✓
4. D reduces quantity demanded, opposing the substitution effect ✓

A Giffen good is an inferior good for which

1. A substitution effect is zero ✓
2. B it is always a luxury ✓
3. C the income effect outweighs the substitution effect, so demand slopes up ✓
4. D cross elasticity is positive ✓

Corner solution in consumer theory means

1. A tangency always exists interior ✓
2. B the consumer buys zero of one good ✓
3. C MRS equals price ratio interior always ✓
4. D budget is unused ✓

Perfect substitutes have indifference curves that are

1. A straight lines ✓
2. B L-shaped ✓
3. C circles ✓
4. D upward sloping ✓

Perfect complements have indifference curves that are

1. A L-shaped (right-angled) ✓
2. B straight lines with positive slope ✓
3. C smooth and linear always ✓
4. D vertical only ✓

The Engel curve relates

1. A price to quantity only ✓
2. B MC to AC ✓
3. C quantity demanded of a good to income ✓
4. D wage to labour supply only ✓

Revealed preference theory is associated with

1. A Marshall only ✓
2. B Ricardo only ✓
3. C Samuelson ✓
4. D Malthus only ✓

Water-diamond paradox is resolved by distinguishing

1. A supply only from demand ✓
2. B total utility versus marginal utility ✓
3. C cardinal from ordinal without MU ✓
4. D short run from long run costs ✓

Consumer surplus under cardinal approach equals

1. A producer surplus ✓
2. B area under demand above price ✓
3. C total cost ✓
4. D tax revenue ✓

A lump-sum tax on the consumer

1. A shifts the budget line inward parallel ✓
2. B rotates the budget line on one axis only ✓
3. C shifts ICs ✓
4. D changes relative prices ✓

An ad valorem tax on good X

1. A steepens or pivots the budget line by raising effective Px ✓
2. B leaves relative prices unchanged ✓
3. C shifts ICs outward ✓
4. D eliminates scarcity ✓

Quasi-linear preferences imply

1. A always Giffen behaviour ✓
2. B upward demand always ✓
3. C no income effect for the non-numeraire good ✓
4. D zero MU ✓

The bliss point (satiation) would make ICs

1. A always linear ✓
2. B always L-shaped without satiation ✓
3. C upward forever ✓
4. D closed curves around the bliss point ✓

Weak axiom of revealed preference (WARP) requires that

1. A if A is chosen when B is affordable, B should not be chosen when A is affordable ✓
2. B prices never change ✓
3. C utility is cardinal ✓
4. D MRS is constant ✓

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

1. A constant ✓
2. B infinite ✓
3. C zero ✓
4. D negative always ✓

As consumption of a good rises, total utility

1. A always falls ✓
2. B rises as long as MU is positive ✓
3. C equals MU always ✓
4. D is independent of quantity ✓

When MU becomes negative

1. A TU is maximized further ✓
2. B price must rise ✓
3. C total utility declines (disutility from extra units) ✓
4. D budget expands ✓

The price consumption curve traces

1. A only income changes ✓
2. B only firm output ✓
3. C optimal bundles as the price of one good changes ✓
4. D only isoquants ✓

The income consumption curve traces

1. A only price changes ✓
2. B optimal bundles as income changes, prices fixed ✓
3. C MC=MR points ✓
4. D PPF points ✓