Question : The concept of the income effect is based on changes in:
Option 1: Consumer preferences
Option 2: Consumer Income
Option 3: Consumer prices
Option 4: Consumer savings
Correct Answer: Consumer Income
Solution : The correct answer is (b) Consumer Income
The concept of the income effect is based on changes in consumer income. It refers to the impact that a change in consumer's income has on their purchasing power and their demand for goods and services.
When a consumer's income increases, their purchasing power also increases, allowing them to buy more goods and services at the given prices. This leads to an upward shift in their budget line and an expansion of their consumption possibilities.
Conversely, when a consumer's income decreases, their purchasing power decreases, resulting in a downward shift in their budget line and a contraction of their consumption possibilities.
Question : The substitution effect is related to changes in:
Option 1: Consumer income
Option 2: Consumer preferences
Question : The concept of the budget line is based on:
Option 2: Consumer income
Option 4: All of the above
Question : The main effect of direct taxes is on:
Option 1: food prices
Option 2: consumer goods
Option 3: capital goods
Option 4: income
Question : The concept of the consumer's surplus is based on the difference between:
Option 1: Total utility and marginal utility
Option 2: Total utility and price
Option 3: Total utility and consumer income
Option 4: Price and consumer income
Question : The concept of income elasticity of demand is important for businesses to understand:
Option 1: The impact of inflation on consumer purchasing power.
Option 2: The relationship between advertising expenditure and sales.
Option 3: The responsiveness of demand to changes in consumer income.
Option 4: The optimal pricing strategy for a given income level.
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