A consumer seeks to maximise his utility. Up to what point should he continue to consume each good?
A until the marginal utility per dollar from each good is the same
B until the marginal utility from each good is the same
C until the marginal utility from each good reaches a maximum
D until the marginal utility from 'each good is zero
[J11/P3/Q1]


➡Answer A

Consumer can attain maximum satisfaction from his expenditure if he purchases the goods up to the point where utility from the last money unit ($) spent on each good becomes equal i.e.

Mua/Pa = Mub/ Pb ... Mue/Pe














For the purposes of measuring the income effect of a change in the price of a good, what is not held constant?
A consumer preferences
B relative prices
C the consumer’s money income
D the consumer’s real income


➡Answer D
Income effect of a price change is measured in terms of a change in real income.












A consumer who aims to maximise his utility will arrange his consumption so that

A the total utility obtained from each commodity is the same.
B the total utility per $ spent on each commodity is the same.
C the same utility is obtained from the last unit of each commodity.
D the same utility is obtained from the last unit of expenditure on each commodity.

[N12/P3/Q2]

➡Answer D

By definition














For the purposes of measuring the income effect of a change in the price of a good, what is not held constant?
A consumer preferences
B relative prices
C the consumer’s money income
D the consumer’s real income
[J15/P3/Q3]

➡Answer D

A change in price causes a change in real income assuming everything else is constant











When the price of a good falls the effect on the quantity demanded is the result of an income effect and a substitution effect. Which statement about these effects is correct?

A For inferior goods the income effect and the substitution effect work in the same direction.
B For inferior, but not Giffen, goods the income effect outweighs the substitution effect.
C For normal goods the income effect and substitution effect work in the same direction.
D For normal goods the income effect outweighs the substitution effect.

[J17/P3/Q5]

➡Answer C
For an inferior good substitution effect outweighs income effect thus all other options are incorrect