CA Foundation · Paper 4 · Business Economics

Chapter 2 · Unit 2 · Theory of Consumer Behaviour

MCQ Test Page · CA Foundation level · instant scoring and answer review

30 MCQs Foundation Level Answer Marking

How to Use This Test

Select one option for each question.
Click Submit Test to see your score instantly.
Correct answers will be shown in green and wrong selections in red.
Explanations are shown below each question after submission.
Click Reset Test to attempt again.

Question 01

Utility in economics means:

usefulness measured morally want-satisfying power of a commodity cost of a commodity market demand for a commodity

In economics, utility means the want-satisfying capacity of a good. It is ethically neutral. :contentReference[oaicite:1]{index=1}

Question 02

The marginal utility analysis of consumer behaviour was developed by:

J.R. Hicks R.G.D. Allen Pigou Alfred Marshall

Marginal utility analysis is associated with Alfred Marshall. :contentReference[oaicite:2]{index=2}

Question 03

The indifference curve analysis of consumer behaviour was developed by:

J.R. Hicks and R.G.D. Allen Marshall and Pigou Keynes and Hicks Ricardo and Marshall

ICAI’s unit names Hicks and Allen for indifference curve analysis. :contentReference[oaicite:3]{index=3}

Question 04

Total utility refers to:

utility from the last unit consumed average utility from all units sum of utilities derived from all units consumed utility from the first unit only

Total utility is the aggregate satisfaction obtained from all units consumed.

Question 05

Marginal utility means:

total satisfaction from all units additional utility from consuming one more unit utility divided by quantity consumer surplus

Marginal utility is the addition to total utility from an extra unit consumed.

Question 06

The law of diminishing marginal utility states that as more units of a commodity are consumed, marginal utility:

always rises remains constant first rises and then stays constant generally declines

This is the core of the law of diminishing marginal utility: each additional unit gives less extra satisfaction.

Question 07

Total utility is maximum when marginal utility is:

zero negative at its highest level equal to average utility

This is a standard ICAI-style MCQ. Total utility reaches maximum when marginal utility becomes zero. :contentReference[oaicite:4]{index=4}

Question 08

If marginal utility becomes negative, total utility will:

continue to increase remain unchanged decrease become infinite

Negative marginal utility means each extra unit reduces total satisfaction, so total utility falls.

Question 09

The law of diminishing marginal utility assumes that:

consumer taste changes continuously during consumption successive units consumed are homogeneous income is unlimited goods are indivisible

Homogeneous units, rational consumer and unchanged tastes are among the standard assumptions.

Question 10

Consumer equilibrium under the single-commodity case is achieved when:

MU is maximum TU is zero MU is negative MU in money terms equals price

A consumer stops buying when the marginal utility in money terms equals the price of the commodity.

Question 11

The law of equi-marginal utility suggests that a consumer maximises satisfaction by equalising:

marginal utility per rupee spent on different goods prices of all goods total utility of all goods average utility of all goods

The equi-marginal principle says MUx/Px = MUy/Py = ... for maximum satisfaction.

Question 12

For two goods X and Y, consumer equilibrium under cardinal utility analysis requires:

MUx = MUy Px = Py MUx/Px = MUy/Py TUx = TUy

This is the standard equilibrium condition under the Marshallian approach.

Question 13

Consumer surplus is the difference between:

price paid and cost of production what consumer is willing to pay and what he actually pays total utility and marginal utility income and expenditure

Consumer surplus measures extra benefit enjoyed by consumer over the actual market price paid.

Question 14

Consumer surplus tends to be larger for goods whose demand is:

perfectly elastic highly competitive only completely absent inelastic

Consumer surplus is generally larger when consumers are willing to pay much more than the market price, often seen in inelastic demand situations.

Question 15

The indifference curve shows combinations of two goods that give the consumer:

equal satisfaction maximum money income equal market price minimum expenditure only

An indifference curve consists of combinations of two goods that yield the same level of satisfaction.

Question 16

Which of the following is a property of indifference curves?

They slope upward from left to right They can intersect each other They slope downward from left to right They are always straight lines

Indifference curves are downward sloping because if one good decreases, more of the other is needed to maintain the same satisfaction.

Question 17

Why can two indifference curves not intersect?

because prices are fixed because it would violate consistency of consumer preferences because income is limited because utility is measurable

If indifference curves intersect, the same bundle would imply two different satisfaction levels, which is impossible.

Question 18

Higher indifference curves represent:

lower satisfaction same satisfaction zero utility higher satisfaction

A higher indifference curve contains bundles with more of at least one good, implying greater satisfaction.

Question 19

Marginal rate of substitution (MRS) refers to:

amount of one good a consumer is willing to sacrifice for one more unit of another good ratio of total utility to marginal utility market rate of exchange only ratio of income to price

MRS measures willingness to substitute one commodity for another while maintaining same satisfaction.

Question 20

The usual shape of an indifference curve reflects:

increasing marginal utility constant income diminishing marginal rate of substitution perfectly elastic demand

Convexity of indifference curves arises because MRS diminishes as the consumer substitutes one good for another.

Question 21

A budget line represents:

all combinations giving equal satisfaction all combinations of two goods that a consumer can afford with given income and prices only the most preferred bundle law of diminishing utility

The budget line shows the consumption possibilities open to a consumer at given prices and income.

Question 22

If consumer income increases, the budget line will:

rotate inward become vertical shift inward parallelly shift outward parallelly if prices remain unchanged

With more income and unchanged prices, purchasing capacity rises, so the budget line shifts outward parallelly.

Question 23

If price of one good falls while income and other price remain constant, the budget line will:

rotate outward from the intercept of the other good shift parallel outward remain unchanged become a curve

A fall in price of one good changes only one intercept, so the budget line rotates.

Question 24

Consumer equilibrium under indifference curve analysis occurs where:

total utility is zero consumer surplus is maximum budget line is tangent to an indifference curve budget line cuts indifference curve at two points

At equilibrium, the highest attainable indifference curve just touches the budget line.

Question 25

At consumer equilibrium under indifference curve analysis:

MUx = MUy MRSxy = Px/Py TU is always maximum at zero price income exceeds expenditure

Tangency condition gives MRSxy = price ratio Px/Py.

Question 26

If an indifference curve is a straight line, the two goods are likely to be:

perfect complements normal goods inferior goods perfect substitutes

Perfect substitutes have constant MRS, so the indifference curve becomes a straight line.

Question 27

If an indifference curve is L-shaped, the goods are likely to be:

perfect complements perfect substitutes inferior goods public goods

Perfect complements are consumed in fixed proportions, giving right-angled indifference curves.

Question 28

Which of the following assumptions is associated more with cardinal utility analysis than with indifference curve analysis?

consumer can rank preferences goods are divisible utility is measurable in cardinal numbers consumer is rational

Marshall’s cardinal analysis assumes utility can be measured numerically, unlike ordinal indifference analysis. :contentReference[oaicite:5]{index=5}

Question 29

Which statement is correct regarding consumer equilibrium under both approaches?

Both ignore prices completely Both aim at maximum satisfaction subject to income constraint Both assume utility is immeasurable Both reject rationality

Both theories explain how a rational consumer allocates limited income to achieve maximum satisfaction. :contentReference[oaicite:6]{index=6}

Question 30

A consumer consumes two goods X and Y. If MUx = 20, MUy = 10, Px = ₹4 and Py = ₹2, what should the consumer do to reach equilibrium?

increase consumption of Y and decrease consumption of X reduce consumption of both goods no change is required as equilibrium already exists increase consumption of X and reduce consumption of Y

Check equilibrium condition: MUx/Px = 20/4 = 5 and MUy/Py = 10/2 = 5. Since both are equal, the consumer is already in equilibrium.

Test Result

Your performance summary will appear here.

Total

Attempted

Correct

Wrong

Unanswered