MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO CONSUMPTION

What does the term “discretionary spending” refer to in economics?
a) Spending on essential goods and services
b) Spending on luxury and non-essential items
c) Government spending on social programs
d) Investment in long-term assets

Answer: b) Spending on luxury and non-essential items

Which of the following is NOT a determinant of consumption in the Keynesian consumption function?
a) Disposable income
b) Interest rates
c) Consumer expectations
d) Government fiscal policy

Answer: d) Government fiscal policy

The law of diminishing marginal utility states that:
a) As income increases, consumption increases proportionally
b) The more you consume of a product, the less satisfaction you get from each additional unit
c) Consumers will always choose the cheapest option available
d) Demand for a product is inversely related to its price

Answer: b) The more you consume of a product, the less satisfaction you get from each additional unit

Which factor is likely to increase aggregate consumption in an economy?
a) Decrease in consumer confidence
b) Increase in unemployment rates
c) Rise in disposable income
d) Higher interest rates

Answer: c) Rise in disposable income

Which of the following is an example of non-durable goods?
a) Cars
b) Clothing
c) Real estate
d) Machinery

Answer: b) Clothing

According to the permanent income hypothesis, consumption is primarily determined by:
a) Current income
b) Expected future income
c) Disposable income
d) Savings rate

Answer: b) Expected future income

The Engel curve shows the relationship between:
a) Income and savings
b) Price and quantity demanded
c) Income and quantity demanded of a normal good
d) Price and quantity supplied

Answer: c) Income and quantity demanded of a normal good

What effect would an increase in the price of a substitute good have on the demand for a particular product?
a) Increase in demand
b) Decrease in demand
c) No effect on demand
d) Decrease in supply

Answer: a) Increase in demand

What is the primary focus of the Veblen effect in consumption theory?
a) The impact of income changes on consumption patterns
b) The effect of advertising on consumer behavior
c) The influence of social status and conspicuous consumption on demand
d) The relationship between price and quantity demanded

Answer: c) The influence of social status and conspicuous consumption on demand

In economics, what does the term “marginal propensity to consume” (MPC) refer to?
a) The percentage of total income spent on consumption
b) The additional utility gained from consuming one more unit of a good
c) The amount of income saved for future consumption
d) The change in quantity demanded due to a change in price

Answer: a) The percentage of total income spent on consumption

According to the Life-Cycle Hypothesis, how does an individual’s consumption behavior change over their lifetime?
a) Consumption remains constant throughout a person’s life
b) Consumption decreases as income increases
c) Consumption increases as individuals approach retirement
d) Consumption decreases as individuals approach retirement

Answer: c) Consumption increases as individuals approach retirement

Which factor would likely lead to an increase in the aggregate demand for goods and services?
a) Decrease in consumer confidence
b) Rise in interest rates
c) Increase in government spending
d) Reduction in disposable income

Answer: c) Increase in government spending

What is the primary determinant of consumption in the permanent income hypothesis?
a) Current income
b) Expected future income
c) Disposable income
d) Savings rate

Answer: b) Expected future income

Which of the following is an example of a durable good?
a) Groceries
b) Furniture
c) Movie tickets
d) Gasoline

Answer: b) Furniture

According to the substitution effect, what happens to the demand for a good if its price increases?
a) Demand increases
b) Demand decreases
c) Demand remains unchanged
d) Demand fluctuates

Answer: b) Demand decreases

The term “utility” in economics refers to:
a) The ability of a good to satisfy a consumer’s wants
b) The measure of a product’s market value
c) The cost of producing a good
d) The price elasticity of demand for a product

Answer: a) The ability of a good to satisfy a consumer’s wants

How does an increase in consumer confidence affect consumption behavior?
a) Increases consumption
b) Decreases consumption
c) No impact on consumption
d) Decreases income

Answer: a) Increases consumption

What does the Engel curve illustrate in consumption theory?
a) Relationship between income and savings
b) Relationship between price and quantity demanded
c) Relationship between income and quantity demanded of a normal good
d) Relationship between income and demand for luxury goods

Answer: c) Relationship between income and quantity demanded of a normal good

Which of the following is a factor affecting consumption in the Keynesian consumption function?
a) Current account deficit
b) Inflation rate
c) Gross domestic product (GDP)
d) Government fiscal policy

Answer: d) Government fiscal policy

According to the Life-Cycle Hypothesis, what influences consumption decisions?
a) Current income only
b) Expected future income only
c) A combination of current and expected future income
d) Disposable income

Answer: c) A combination of current and expected future income

What is the main premise of the Ricardian Equivalence Theory?
a) Consumer preferences dictate spending habits
b) Government borrowing does not affect consumption
c) Consumers adjust spending based on taxation
d) Government spending directly influences consumption

Answer: b) Government borrowing does not affect consumption

The income effect and substitution effect are concepts associated with changes in:
a) Price levels
b) Consumer preferences
c) Income levels
d) Quantity demanded

Answer: a) Price levels

In the context of consumption, what does “ceteris paribus” mean?
a) The total consumption in an economy
b) Holding all other factors constant except the one being considered
c) The average consumption per capita
d) The change in consumption over time

Answer: b) Holding all other factors constant except the one being considered

Which of the following is an example of a non-durable good?
a) Automobile
b) Jewelry
c) Food
d) Home appliances

Answer: c) Food

The “Paradox of Thrift” suggests that:
a) Saving more leads to increased investment and economic growth
b) Higher savings lead to decreased investment and economic slowdown
c) Consumers should save less to stimulate economic growth
d) Savings have no impact on the economy

Answer: b) Higher savings lead to decreased investment and economic slowdown

According to the Law of Demand, what happens to the quantity demanded of a good when its price increases, assuming other factors remain constant?
a) Quantity demanded increases
b) Quantity demanded decreases
c) Quantity demanded remains unchanged
d) Quantity demanded fluctuates

Answer: b) Quantity demanded decreases

The concept of “marginal utility” refers to the:
a) Total satisfaction gained from consuming a good
b) Additional satisfaction gained from consuming one more unit of a good
c) Price increase when demand rises
d) Average satisfaction derived from consuming a good

Answer: b) Additional satisfaction gained from consuming one more unit of a good

What does the term “consumer surplus” measure?
a) The total spending by consumers on goods and services
b) The difference between what consumers are willing to pay for a good and what they actually pay
c) The percentage of income spent on necessities
d) The total amount of goods consumed by households

Answer: b) The difference between what consumers are willing to pay for a good and what they actually pay

Which of the following is likely to increase the demand for a normal good?
a) Increase in its price
b) Decrease in consumer income
c) Increase in the price of its complement
d) Increase in consumer preferences for the good

Answer: d) Increase in consumer preferences for the good

The concept of “conspicuous consumption” refers to the purchase of goods and services primarily to:
a) Satisfy basic needs
b) Display social status or wealth
c) Meet long-term investment goals
d) Fulfill environmental sustainability

Answer: b) Display social status or wealth

What effect does an increase in the price of a complementary good have on the demand for another good?
a) Increase in demand
b) Decrease in demand
c) No effect on demand
d) Decrease in supply

Answer: a) Increase in demand

According to the Marginal Propensity to Consume (MPC), if an individual receives an additional $100 and spends $80 of it, what is their MPC?
a) 0.8
b) 0.2
c) 1.0
d) 0.5

Answer: d) 0.5

What is the relationship between income elasticity of demand and luxury goods?
a) Income elasticity is negative for luxury goods
b) Income elasticity is less than 1 for luxury goods
c) Income elasticity is greater than 1 for luxury goods
d) Income elasticity is zero for luxury goods

Answer: c) Income elasticity is greater than 1 for luxury goods

What does the substitution effect primarily explain in consumer behavior?
a) The change in quantity demanded due to a change in price
b) How consumers switch between different goods based on price changes
c) The effect of income changes on consumption patterns
d) How consumer preferences dictate spending habits

Answer: b) How consumers switch between different goods based on price changes

In the context of consumption, what does the term “saving rate” refer to?
a) The percentage of disposable income spent on consumption
b) The percentage of income saved for future consumption or investment
c) The interest rate on savings accounts
d) The ratio of investment to GDP

Answer: b) The percentage of income saved for future consumption or investment

If the cross-price elasticity of demand between two goods is negative, what kind of goods are they?
a) Complementary goods
b) Substitute goods
c) Inferior goods
d) Normal goods

Answer: a) Complementary goods

What does the term “inflationary expectations” refer to in consumption theory?
a) Expectations about future price increases
b) Consumer expectations regarding the quality of goods
c) Changes in consumer preferences due to inflation
d) Government policies to control inflation

Answer: a) Expectations about future price increases

What is the primary concern of the “liquidity trap” concept in relation to consumption?
a) High levels of savings due to low interest rates
b) Excessive spending by consumers leading to inflation
c) Insufficient demand even with low interest rates
d) The impact of government policies on consumption

Answer: c) Insufficient demand even with low interest rates

How does an increase in interest rates affect consumption behavior, assuming all other factors remain constant?
a) Increases consumption
b) Decreases consumption
c) No impact on consumption
d) Increases savings

Answer: b) Decreases consumption

Which factor is NOT considered a non-price determinant of demand?
a) Consumer income
b) Price of related goods
c) Consumer preferences
d) Production costs

Answer: d) Production costs

The “Engel curve” illustrates the relationship between:
a) Quantity demanded and price
b) Income and quantity demanded of a normal good
c) Income and savings
d) Demand and supply

Answer: b) Income and quantity demanded of a normal good

Which term describes the situation where consumers purchase goods and services to display their wealth or social status?
a) Conspicuous consumption
b) Rational consumption
c) Essential consumption
d) Frugal consumption

Answer: a) Conspicuous consumption

According to the income effect, if the price of a good falls:
a) Consumers will buy more of that good
b) Consumers will buy less of that good
c) Consumers’ purchasing power decreases
d) Consumers’ purchasing power increases

Answer: d) Consumers’ purchasing power increases

Which factor affects the demand for inferior goods?
a) Increase in consumer income
b) Decrease in consumer income
c) Increase in the price of a substitute good
d) Decrease in the price of a complementary good

Answer: b) Decrease in consumer income

The “Paradox of Thrift” suggests that:
a) Increased savings lead to increased economic growth
b) Increased savings lead to decreased economic growth
c) Increased savings have no impact on economic growth
d) Decreased savings lead to increased economic growth

Answer: b) Increased savings lead to decreased economic growth

If the price of a good increases and its demand decreases, this good is considered:
a) An inferior good
b) A normal good
c) A Giffen good
d) A complementary good

Answer: b) A normal good

What happens to the consumption of a normal good when consumer income increases?
a) Consumption decreases
b) Consumption remains constant
c) Consumption increases
d) Consumption becomes elastic

Answer: c) Consumption increases

The “income elasticity of demand” measures the:
a) Percentage change in quantity demanded due to a percentage change in income
b) Change in quantity demanded due to a change in price
c) Change in price due to a change in income
d) Change in quantity demanded due to a change in preferences

Answer: a) Percentage change in quantity demanded due to a percentage change in income

If the cross-price elasticity between two goods is positive, these goods are considered:
a) Complementary goods
b) Substitute goods
c) Normal goods
d) Inferior goods

Answer: b) Substitute goods

The “permanent income hypothesis” suggests that consumption decisions are primarily influenced by:
a) Current income only
b) Past income only
c) Expected future income
d) Disposable income

Answer: c) Expected future income

In economics, the term “disposable income” refers to:
a) Income after taxes and transfer payments
b) Total income before any deductions
c) Savings accumulated over time
d) Income generated from investments

Answer: a) Income after taxes and transfer payments

The “marginal propensity to consume” (MPC) represents the:
a) Total amount saved from income
b) Proportion of income spent on consumption
c) Change in consumption due to a change in income
d) Percentage of income spent on luxury goods

Answer: b) Proportion of income spent on consumption

According to the Keynesian consumption function, what is the main determinant of consumption?
a) Disposable income
b) Interest rates
c) Consumer confidence
d) Price levels

Answer: a) Disposable income

The substitution effect and the income effect are associated with:
a) Changes in consumer preferences
b) Changes in the quantity demanded
c) Changes in income levels
d) Changes in price levels

Answer: d) Changes in price levels

Which factor does NOT influence consumption in the Life-Cycle Hypothesis?
a) Current income
b) Expected future income
c) Age and stage of life
d) Interest rates

Answer: d) Interest rates

What does the “Engel curve” show in relation to consumption?
a) Relationship between income and savings
b) Relationship between price and quantity demanded
c) Relationship between income and quantity demanded of a normal good
d) Relationship between income and demand for luxury goods

Answer: c) Relationship between income and quantity demanded of a normal good

The “Veblen effect” primarily focuses on the impact of:
a) Income changes on consumption patterns
b) Advertising on consumer behavior
c) Social status and conspicuous consumption on demand
d) Price changes on consumer preferences

Answer: c) Social status and conspicuous consumption on demand

What effect does an increase in consumer confidence have on consumption behavior?
a) Decreases consumption
b) Increases consumption
c) No impact on consumption
d) Increases savings

Answer: b) Increases consumption

According to the Law of Demand, what happens when the price of a good decreases, assuming other factors remain constant?
a) Quantity demanded decreases
b) Quantity demanded increases
c) Quantity demanded remains unchanged
d) Quantity demanded fluctuates

Answer: b) Quantity demanded increases

The “income elasticity of demand” measures the:
a) Percentage change in quantity demanded due to a percentage change in income
b) Change in quantity demanded due to a change in price
c) Change in price due to a change in income
d) Change in quantity demanded due to a change in preferences

Answer: a) Percentage change in quantity demanded due to a percentage change in income

What happens to the consumption of an inferior good when consumer income increases?
a) Consumption increases
b) Consumption decreases
c) Consumption remains constant
d) Consumption becomes elastic

Answer: b) Consumption decreases

The term “utility” in economics refers to:
a) The ability of a good to satisfy a consumer’s wants
b) The measure of a product’s market value
c) The cost of producing a good
d) The price elasticity of demand for a product

Answer: a) The ability of a good to satisfy a consumer’s wants

If the cross-price elasticity between two goods is negative, these goods are considered:
a) Complementary goods
b) Substitute goods
c) Normal goods
d) Inferior goods

Answer: a) Complementary goods

The “substitution effect” primarily explains:
a) The change in quantity demanded due to a change in price
b) How consumers switch between different goods based on price changes
c) The effect of income changes on consumption patterns
d) How consumer preferences dictate spending habits

Answer: b) How consumers switch between different goods based on price changes

The concept of “conspicuous consumption” refers to purchasing goods and services primarily to:
a) Satisfy basic needs
b) Display social status or wealth
c) Meet long-term investment goals
d) Fulfill environmental sustainability

Answer: b) Display social status or wealth

If the price of a good increases and its demand decreases, this good is considered:
a) An inferior good
b) A normal good
c) A Giffen good
d) A complementary good

Answer: b) A normal good

The “Paradox of Thrift” suggests that:
a) Increased savings lead to increased economic growth
b) Increased savings lead to decreased economic growth
c) Increased savings have no impact on economic growth
d) Decreased savings lead to increased economic growth

Answer: b) Increased savings lead to decreased economic growth

According to the Law of Diminishing Marginal Utility, what happens as a consumer consumes more units of a good?
a) Total utility increases
b) Marginal utility increases
c) Marginal utility decreases
d) Total utility remains constant

Answer: c) Marginal utility decreases

The “permanent income hypothesis” suggests that consumption decisions are primarily influenced by:
a) Current income only
b) Past income only
c) Expected future income
d) Disposable income

Answer: c) Expected future income

Which factor is NOT considered a non-price determinant of demand?
a) Consumer income
b) Price of related goods
c) Consumer preferences
d) Production costs

Answer: d) Production costs