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# CA Foundation | Theory of Consumer Behaviour MCQ Test | Chanakya Commerce Classes

CA Foundation Paper 4 Business Economics Chapter 2 Unit 2 Theory of Consumer Behaviour MCQ test page with instant scoring by Chanakya Commerce Classes.

Canonical URL: https://www.chanakyaclasses.com/mcqs/theory-of-consumer-behaviour

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Business Economics MCQ
Chapter 2 · Unit 2 · Theory of Consumer Behaviour
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CA Foundation · Paper 4 · Business Economics
Chapter 2 · Unit 2 ·
Theory of Consumer Behaviour
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30 MCQs
Foundation Level
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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.
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MCQ Test · Chapter 2 · Unit 2 · Theory of Consumer Behaviour