Question : Indifference curves are concave to the origin because of:
Option 1: Diminishing marginal utility
Option 2: Increasing marginal utility
Option 3: Constant marginal utility
Option 4: Zero marginal utility
Correct Answer: Diminishing marginal utility
Solution : The correct answer is (a) Diminishing marginal utility.
Indifference curves represent different combinations of goods or services that provide the consumer with the same level of satisfaction or utility. The concave shape of indifference curves is a reflection of the principle of diminishing marginal utility. According to this principle, as an individual consumes more of a particular good while holding the consumption of other goods constant, the additional utility or satisfaction derived from each additional unit of the good tends to diminish.
This diminishing marginal utility leads to the concave shape of indifference curves. As the consumer moves along an indifference curve from left to right, the quantity of one good increases while the quantity of the other good decreases. To maintain the same level of satisfaction, the consumer requires increasingly larger compensating quantities of the decreasing good to offset the reduction in the other good. This leads to the curve becoming steeper, resulting in a concave shape.
Question : Statement 1: An individual's indifference curve is concave to the origin.
Statement 2: The concavity of indifference curves reflects the diminishing marginal rate of substitution.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Question : The law of diminishing marginal utility states that:
Option 1: Marginal utility increases as consumption increases
Option 2: Total utility decreases as consumption increases
Option 3: Marginal utility decreases as consumption increases
Option 4: Total utility remains constant as consumption increases
Question : The consumer's equilibrium is attained at the point where:
Option 1: Marginal utility is zero
Option 2: Marginal utility is positive
Option 3: Marginal utility is equal to price
Option 4: Marginal utility is equal to income
Question : What is the First Law of Gossen?
Option 1: Law of Equi-marginal utility
Option 2: Law of Diminishing marginal utility
Option 3: Law of supply
Option 4: Law of demand
Question : In the cardinal utility approach, consumer's equilibrium is achieved when:
Option 1: Total utility is maximized.
Option 2: Marginal utility is maximized.
Option 3: Marginal utility equals zero.
Option 4: Marginal utility per dollar spent is equal across all goods.
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