Indifference Curve Analysis
Economics ⇒ Consumer and Producer Behaviour
Indifference Curve Analysis starts at 11 and continues till grade 12.
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Define an indifference curve.
Describe the condition for consumer equilibrium using indifference curve analysis.
Describe the effect on the consumer's equilibrium if the price of one good falls, keeping income and the price of the other good constant.
Explain the concept of a budget line in indifference curve analysis.
Explain the concept of the marginal rate of substitution (MRS).
Explain the difference between cardinal and ordinal utility.
A consumer consumes only two goods, X and Y. If the price of X is Rs. 5, price of Y is Rs. 10, and income is Rs. 50, how many units of X can the consumer buy if he spends all his income on X?
Suppose a consumer has a fixed income of Rs. 100, the price of good X is Rs. 10, and the price of good Y is Rs. 20. What is the equation of the budget line?
A consumer is in equilibrium when (1) MRS = Price ratio (2) MRS > Price ratio (3) MRS < Price ratio (4) Indifference curve is below the budget line
A consumer's indifference map consists of (1) One indifference curve (2) Two indifference curves (3) A family of indifference curves (4) A single point
If a consumer moves down along an indifference curve, the MRS of X for Y (1) Increases (2) Decreases (3) Remains constant (4) Becomes zero
If the price of good X falls, the budget line will (1) Rotate outward from the Y-axis (2) Rotate inward from the Y-axis (3) Shift parallel to the right (4) Shift parallel to the left
Fill in the blank: Indifference curve analysis is based on the concept of _______ utility.
Fill in the blank: The point where the budget line is tangent to the highest possible indifference curve is called the _______.
Fill in the blank: The slope of the budget line is equal to the negative of the ratio of the price of X to the price of Y, i.e., _______.
Indifference curves are always _______ to the origin.
State whether the following statement is true or false: Indifference curve analysis assumes that utility can be measured in cardinal numbers.
State whether the following statement is true or false: Indifference curves are downward sloping from left to right.
State whether the following statement is true or false: The indifference curve approach is based on the law of diminishing marginal utility.
True or False: Indifference curve analysis assumes that goods are homogeneous and divisible.
