Theory of Consumer Behaviour (Class 12 Economics)

Practise chapter-wise MCQs for Class 12 Economics — Theory of Consumer Behaviour. Every question comes with the correct answer and an explanation.

Theory of Consumer Behaviour (Class 12 Economics)

Practise chapter-wise MCQs for Class 12 Economics — Theory of Consumer Behaviour. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 12 Economics — Theory of Consumer Behaviour. Every question comes with the correct answer and an explanation.

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Practise chapter-wise MCQs for Class 12 Economics — Theory of Consumer Behaviour. Every question comes with the correct answer and an explanation.

Theory of Consumer Behaviour MCQs with Answers & Explanations

Q1. Which of the following is a characteristic of an indifference curve?

  1. Indifference curves are convex to the origin. ✓ (correct)
  2. Indifference curves slope upwards.
  3. Indifference curves can intersect each other.
  4. Indifference curves are typically concave to the origin.

Explanation: Indifference curves are generally convex to the origin due to the principle of diminishing marginal rate of substitution, meaning consumers are willing to give up less of one good to obtain more of another as they have more of the latter.

Q2. Which of the following best describes a 'normal good' in economics?

  1. A good whose demand decreases as income increases.
  2. A good whose demand increases as income increases. ✓ (correct)
  3. A good whose demand is unaffected by changes in income.
  4. A good whose demand increases as its price decreases.

Explanation: A normal good is characterized by a positive relationship between income and quantity demanded. As income rises, consumers tend to buy more of normal goods.

Q3. If the price of a good decreases, and the demand for that good also decreases, what type of good is it likely to be?

  1. A normal good.
  2. A substitute good.
  3. An inferior good. ✓ (correct)
  4. A complementary good.

Explanation: An inferior good is one for which the quantity demanded decreases as the consumer's income increases, or in this context, as its price decreases (which can be interpreted as an increase in 'real' income).

Q4. The law of diminishing marginal utility states that as a consumer consumes more and more units of a good, the additional satisfaction derived from each successive unit:

  1. Increases at an increasing rate.
  2. Remains constant.
  3. Increases at a decreasing rate.
  4. Decreases at an increasing rate. ✓ (correct)

Explanation: The law states that marginal utility FALLS as successive units are consumed. Any option saying utility increases contradicts the law itself.

Q5. If the income of a consumer increases, and they start buying more of good X and less of good Y, what can be inferred about good Y?

  1. Good Y is an inferior good. ✓ (correct)
  2. Good Y is a normal good.
  3. Good Y is a complement to good X.
  4. Good Y is a substitute for good X.

Explanation: If the consumption of good Y decreases as income increases, it means good Y is an inferior good. Consumers tend to switch to better quality or more preferred normal goods as their income rises.

Q6. What does the slope of the indifference curve represent?

  1. The income effect.
  2. The marginal rate of substitution (MRS). ✓ (correct)
  3. The total utility of the two goods.
  4. The price ratio of the two goods.

Explanation: The slope of the indifference curve at any point is known as the Marginal Rate of Substitution (MRS). It shows the rate at which a consumer is willing to give up one good for another while maintaining the same level of satisfaction.

Q7. The point of consumer's equilibrium occurs where:

  1. The marginal utility is maximized.
  2. The total utility equals the total cost.
  3. The budget line is tangent to the highest possible indifference curve. ✓ (correct)
  4. The demand curve intersects the supply curve.

Explanation: Consumer's equilibrium is achieved when the consumer maximizes their satisfaction subject to their budget constraint. This occurs at the point where the budget line is tangent to the highest attainable indifference curve, meaning the slope of the budget line equals the slope of the indifference curve (MRS = Px/Py).

Q8. Which concept explains why a consumer buys more of a good when its price falls, even if their income were to remain constant?

  1. Indifference curve analysis.
  2. Consumer's equilibrium.
  3. Law of diminishing marginal utility.
  4. Income effect and substitution effect. ✓ (correct)

Explanation: The law of demand states that quantity demanded increases as price falls. This is explained by the combined effects of the substitution effect (the good becomes relatively cheaper) and the income effect (the consumer's real purchasing power increases).

Q9. The budget line represents:

  1. Combinations of goods that a consumer can afford with their given income and market prices. ✓ (correct)
  2. The total utility derived from consuming a good.
  3. Combinations of goods that provide equal levels of satisfaction.
  4. The maximum quantity of a good a consumer is willing to buy at a given price.

Explanation: The budget line (or budget constraint) illustrates all possible combinations of two goods that a consumer can purchase given their income and the prices of the two goods.

Q10. The substitution effect on demand for a good is always:

  1. Positive.
  2. Negative. ✓ (correct)
  3. Either positive or negative depending on the good.
  4. Zero.

Explanation: The substitution effect is always negative because when the price of a good falls, it becomes relatively cheaper than other goods, and consumers tend to substitute the relatively cheaper good for others, thus increasing its demand.

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