Consumer's Equilibrium - MCQ Test

Section A: Standard MCQs (15 Questions)

1. Which condition is necessary for a consumer to be in equilibrium under the cardinal utility
approach?
a) MUx = Px
b) MUx/Px = MUy/Py
c) MUx = MUy
d) MUx = TU
2. When a consumer increases the consumption of a good, its marginal utility:
a) Remains constant
b) Increases
c) Diminishes
d) Becomes zero
3. What does the term "budget constraint" signify?
a) The consumer’s total satisfaction level
b) The consumer’s fixed income and prices of goods
c) Unlimited wants of the consumer
d) Opportunity cost
4. Which curve shows various combinations of two goods that provide equal satisfaction to the
consumer?
a) Indifference curve
b) Budget line
c) Marginal utility curve
d) Demand curve
5. In the indifference curve analysis, a higher indifference curve represents:
a) Less satisfaction
b) Equal satisfaction
c) Higher satisfaction
d) No change in satisfaction
6. What is the slope of the indifference curve called?
a) Marginal Utility
b) Marginal Rate of Substitution (MRS)
c) Price Ratio
d) Opportunity Cost
7. Consumer’s equilibrium in the indifference curve analysis occurs where:
a) MRSxy > Px/Py
b) MRSxy < Px/Py
c) MRSxy = Px/Py
d) MRSxy = TUx/TUy
8. The law of diminishing marginal utility applies to:
a) Money
b) Goods and services
c) Luxury goods only
d) All goods except necessities
9. If MUx/Px < MUy/Py, the consumer should:
a) Buy more of X and less of Y
b) Buy more of Y and less of X
c) Buy equal quantities of X and Y
d) Buy only Y
10. What happens to the budget line if the consumer’s income increases?
a) It shifts inward
b) It shifts outward
c) It remains unchanged
d) It pivots
 11. The indifference curve is convex to the origin because of:
a) Increasing MRS
b) Diminishing MRS
c) Equal satisfaction
d) Substitutability of goods
12. At the point of tangency between the budget line and an indifference curve:
a) MRSxy = Px/Py
b) MUx = Px
c) TUx = TUy
d) MUx/Px = MUy/Py
13. If the price of good X decreases, the consumer equilibrium will:
a) Shift to a lower indifference curve
b) Shift to a higher indifference curve
c) Remain the same
d) Move along the same budget line
14. Which of the following is not an assumption of the indifference curve analysis?
a) Consumer rationality
b) Perfect divisibility of goods
c) Fixed preferences
d) Constant income
15. A consumer’s equilibrium changes when there is:
a) A change in preferences
b) A change in income
c) A change in the price of a good
d) All of the above

Section B: Assertion-Reason Questions (5 Questions)

16. Assertion (A): Indifference curves never intersect.

Reason (R): Two intersecting indifference curves would imply inconsistent consumer preferences.
a) Both A and R are true, and R is the correct explanation of A.
b) Both A and R are true, but R is not the correct explanation of A.
c) A is true, but R is false.
d) A is false, but R is true.
17. Assertion (A): The budget line represents all possible combinations of two goods that a consumer can
purchase.
Reason (R): The budget line depends on the prices of goods and the consumer's income.
a) Both A and R are true, and R is the correct explanation of A.
b) Both A and R are true, but R is not the correct explanation of A.
c) A is true, but R is false.
d) A is false, but R is true.
18. Assertion (A): Higher indifference curves indicate higher levels of satisfaction.
Reason (R): More goods always provide more utility to the consumer.
a) Both A and R are true, and R is the correct explanation of A.
b) Both A and R are true, but R is not the correct explanation of A.
c) A is true, but R is false.
d) A is false, but R is true.
19. Assertion (A): Marginal utility diminishes as more units of a commodity are consumed.
Reason (R): A rational consumer tries to equalize the MU to the price ratio.
a) Both A and R are true, and R is the correct explanation of A.
b) Both A and R are true, but R is not the correct explanation of A.
c) A is true, but R is false.
d) A is false, but R is true.
 20. Assertion (A): A rational consumer aims to maximize total utility.
Reason (R): This is achieved when the law of equi-marginal utility holds.
a) Both A and R are true, and R is the correct explanation of A.
b) Both A and R are true, but R is not the correct explanation of A.
c) A is true, but R is false.
d) A is false, but R is true.

Answer Key

Section A: Standard MCQs

1. b
2. c
3. b
4. a
5. c
6. b
7. c
8. b
9. b
10. b
11. b
12. a
13. b
14. c
15. d

Section B: Assertion-Reason
16. a
17. a
18. b
19. c
20. a

Class 11 CBSE Test: Consumer's Equilibrium (20 MCQs)

Multiple Choice Questions (15 Questions)

1. Which condition is necessary for consumer equilibrium in the case of a single commodity? a. MU
= TU
b. MUx = Px
c. MUx/Px = MUy/Py
d. MUx > Px
Answer: b. MUx = Px
2. In the case of two commodities, consumer equilibrium is achieved when: a. MUx = MUy
b. MUx/Px = MUy/Py
c. Px = Py
d. TUx = TUy
Answer: b. MUx/Px = MUy/Py
3. The indifference curve represents: a. Different levels of consumption of a single commodity
b. Combinations of two goods that provide the same level of satisfaction
c. The budget constraint of the consumer
d. The income effect
Answer: b. Combinations of two goods that provide the same level of satisfaction
4. What does the slope of the budget line represent? a. Consumer equilibrium
b. Marginal rate of substitution
c. The ratio of prices of two goods
d. Total utility
Answer: c. The ratio of prices of two goods
5. Which of the following statements is true for a rational consumer? a. They prefer to maximize
marginal utility.
b. They aim to maximize total utility.
c. They always purchase the cheapest goods.
d. They never compare prices and utilities.
Answer: b. They aim to maximize total utility.
6. If the price of good X increases, the budget line: a. Shifts outward
b. Rotates inward
c. Rotates outward
d. Shifts inward
Answer: b. Rotates inward
7. What happens when a consumer's income increases? a. The indifference curve shifts leftward.
b. The budget line shifts outward.
c. Marginal utility diminishes.
d. Marginal rate of substitution increases.
Answer: b. The budget line shifts outward
8. The principle of diminishing marginal utility states that: a. Total utility decreases with each
additional unit consumed.
b. Marginal utility increases with consumption.
c. Marginal utility decreases as more units are consumed.
d. Total utility remains constant.
Answer: c. Marginal utility decreases as more units are consumed.
9. If MRS is higher than the price ratio, the consumer should: a. Buy more of the cheaper good.
b. Buy less of the cheaper good.
c. Continue consuming at the same level.
d. Reduce their budget.
Answer: a. Buy more of the cheaper good.
10. What does the term "budget set" refer to? a. The collection of all affordable combinations of two
goods
b. The collection of all utility-maximizing combinations of two goods
c. The consumer's total expenditure
d. The total income of the consumer
Answer: a. The collection of all affordable combinations of two goods
11. Which of the following is NOT an assumption of consumer equilibrium? a. Rational behavior
b. Consistent preferences
c. Increasing marginal utility
d. Limited income
Answer: c. Increasing marginal utility
12. The concept of consumer equilibrium is most closely related to which economic concept? a.
Opportunity cost
b. Demand curve
c. Utility maximization
d. Elasticity
Answer: c. Utility maximization
13. When is the consumer in equilibrium according to the indifference curve analysis? a. When the
indifference curve intersects the budget line
b. When the slope of the indifference curve equals the slope of the budget line
c. When the budget line shifts inward
d. When marginal utility is maximized
Answer: b. When the slope of the indifference curve equals the slope of the budget line
 14. Which of the following factors does NOT affect consumer equilibrium? a. Income
b. Prices of goods
c. Marginal utility
d. Advertising expenditure
Answer: d. Advertising expenditure
15. The shape of an indifference curve is: a. Downward sloping and convex to the origin
b. Upward sloping and concave to the origin
c. Downward sloping and concave to the origin
d. Upward sloping and convex to the origin
Answer: a. Downward sloping and convex to the origin

Assertion-Reason Questions (5 Questions)

16. Assertion (A): A consumer reaches equilibrium when marginal utility equals the price of the
commodity. Reason (R): Marginal utility of money remains constant.
a. Both A and R are true, and R is the correct explanation of A.
b. Both A and R are true, but R is not the correct explanation of A.
c. A is true, but R is false.
d. A is false, but R is true.
Answer: a. Both A and R are true, and R is the correct explanation of A.
17. Assertion (A): Indifference curves can intersect each other. Reason (R): Each indifference curve
represents a different level of satisfaction.
a. Both A and R are true, and R is the correct explanation of A.
b. Both A and R are true, but R is not the correct explanation of A.
c. A is true, but R is false.
d. A is false, but R is true.
Answer: d. A is false, but R is true.
18. Assertion (A): The slope of an indifference curve is referred to as the marginal rate of substitution.
Reason (R): The marginal rate of substitution diminishes as we move down along the curve.
a. Both A and R are true, and R is the correct explanation of A.
b. Both A and R are true, but R is not the correct explanation of A.
c. A is true, but R is false.
d. A is false, but R is true.
Answer: a. Both A and R are true, and R is the correct explanation of A.
19. Assertion (A): A higher indifference curve represents a lower level of satisfaction. Reason (R):
Satisfaction increases as the consumption of goods increases.
a. Both A and R are true, and R is the correct explanation of A.
b. Both A and R are true, but R is not the correct explanation of A.
c. A is true, but R is false.
d. A is false, but R is true.
Answer: d. A is false, but R is true.
20. Assertion (A): Consumer equilibrium ensures maximum satisfaction within a given budget. Reason
(R): The consumer allocates income such that the marginal utility per rupee is equal across all goods.
a. Both A and R are true, and R is the correct explanation of A.
b. Both A and R are true, but R is not the correct explanation of A.
c. A is true, but R is false.
d. A is false, but R is true.
Answer: a. Both A and R are true, and R is the correct explanation of A.

Answer Key

MCQs:

1. b
2. b
3. b
 4. c
5. b
6. b
7. b
8. c
9. a
10. a
11. c
12. c
13. b
14. d
15. a

Assertion-Reason: 16. a 17. d 18. a 19. d 20. a