21- 40 multiple choice questions on income and substitution effect:Tough and hard ones
21. **Consumer Preferences and Inferior Goods**:
Question: In the case of an inferior good, what happens to the quantity demanded when its price falls?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer income.
Correct Answer: b) The quantity demanded increases.
22. **Price Changes and Total Effect**:
Question: If the price of a good falls, leading to an increase in quantity demanded, and the income effect reinforces the substitution effect, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: a) The total effect is positive.
23. **Consumer Choices and Income Effect**:
Question: When a consumer's income increases, and they increase their consumption of a normal good, what effect is primarily at play?
a) The substitution effect.
b) The income effect.
c) The total effect.
d) The luxury effect.
Correct Answer: b) The income effect.
24. **Price Changes and Inferior Goods**:
Question: If the price of an inferior good rises, what happens to the income effect?
a) The income effect reinforces the substitution effect.
b) The income effect opposes the substitution effect.
c) There is no income effect for inferior goods.
d) The income effect and the substitution effect cancel each other out.
Correct Answer: b) The income effect opposes the substitution effect.
25. **Consumer Behavior and Giffen Goods**:
Question: In the case of Giffen goods, what happens to the quantity demanded when the price falls?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer preferences.
Correct Answer: a) The quantity demanded decreases.
26. **Consumer Preferences and Total Effect**:
Question: If the price of a good rises, leading to a decrease in quantity demanded, and the income effect reinforces the substitution effect, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: b) The total effect is negative.
27. **Consumer Choices and Substitution Effect**:
Question: What effect is primarily responsible for the Law of Demand?
a) The income effect.
b) The substitution effect.
c) The total effect.
d) The price effect.
Correct Answer: b) The substitution effect.
28. **Normal vs. Inferior Goods**:
Question: For an inferior good, what typically happens to the substitution effect when the price falls?
a) The substitution effect reinforces the income effect.
b) The substitution effect opposes the income effect.
c) There is no substitution effect for inferior goods.
d) The substitution effect and the income effect cancel each other out.
Correct Answer: b) The substitution effect opposes the income effect.
29. **Consumer Preferences and Giffen Goods**:
Question: What is a characteristic feature of Giffen goods?
a) They always have a negative income effect.
b) They always have a negative substitution effect.
c) They have a positive price elasticity of demand.
d) They have a unique relationship between price and quantity demanded.
Correct Answer: d) They have a unique relationship between price and quantity demanded.
30. **Consumer Behavior and Elasticity**:
Question: Which of the following goods is more likely to have a price elasticity of demand greater than 1?
a) A necessity.
b) An inferior good.
c) A luxury good.
d) An inelastic good.
Correct Answer: c) A luxury good.
31. **Price Changes and Inferior Goods**:
Question: If the price of an inferior good rises, what effect dominates in terms of quantity demanded?
a) The income effect.
b) The substitution effect.
c) The total effect.
d) The indifference effect.
Correct Answer: a) The income effect.
32. **Consumer Preferences and Normal Goods**:
Question: For a normal good, what typically happens to the quantity demanded when the price falls?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer preferences.
Correct Answer: b) The quantity demanded increases.
33. **Consumer Behavior and Total Effect**:
Question: If a consumer's utility increases due to both an increase in quantity and an increase in income, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: a) The total effect is positive.
34. **Consumer Choices and Income Effect**:
Question: When the price of a luxury good increases, what happens to the income effect?
a) The income effect reinforces the substitution effect.
b) The income effect opposes the substitution effect.
c) There is no income effect for luxury goods.
d) The income effect and the substitution effect cancel each other out.
Correct Answer: a) The income effect reinforces the substitution effect.
35. **Consumer Preferences and Giffen Goods**:
Question: What is a defining characteristic of Giffen goods?
a) They have a positive income effect.
b) They have a negative substitution effect.
c) They have a unique relationship between price and quantity demanded.
d) They are always luxury goods.
Correct Answer: c) They have a unique relationship between price and quantity demanded.
36. **Consumer Behavior and Elasticity**:
Question: Which of the following goods is more likely to have a price elasticity of demand less than 1?
a) A necessity.
b) An inferior good.
c) A luxury good.
d) An inelastic good.
Correct Answer: a) A necessity.
37. **Consumer Choices and Total Effect**:
Question: If the price of a good increases, leading to a decrease in quantity demanded, and the income and substitution effects reinforce each other, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: b) The total effect is negative.
38. **Normal vs. Inferior Goods**:
Question: Which of the following goods is more likely to be considered an inferior good?
a) A high-quality luxury item.
b) A basic necessity.
c) A Giffen good.
d) A generic store brand product.
Correct Answer: c) A Giffen good.
39. **Consumer Preferences and Substitution Effect**:
Question: What is the primary focus of the substitution effect?
a) Changes in consumer income.
b) Changes in consumer preferences.
c) Changes in consumer substitution between goods.
d) Changes in consumer indifference.
Correct Answer: c) Changes in consumer substitution between goods.
40. **Price Changes and Total Effect**:
Question: When the price of a good increases, leading to a decrease in quantity demanded, and the income effect opposes the substitution effect, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: b) The total effect is negative.
41. **Consumer Behavior and Inferior Goods**:
Question: In the case of an inferior good, what happens to the quantity demanded when consumer income increases?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer preferences.
Correct Answer: a) The quantity demanded decreases.
42. **Price Changes and Normal Goods**:
Question: For a normal good, what is the relationship between the substitution effect and the income effect when its price falls?
a) The substitution effect reinforces the income effect.
b) The substitution effect opposes the income effect.
c) There is no substitution effect for normal goods.
d) The substitution effect and the income effect cancel each other out.
Correct Answer: a) The substitution effect reinforces the income effect.
43. **Consumer Choices and Total Effect**:
Question: If the price of a good falls, leading to an increase in quantity demanded, and the income and substitution effects oppose each other, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: b) The total effect is negative.
44. **Consumer Preferences and Luxury Goods**:
Question: When the price of a luxury good increases, what is the expected impact on the quantity demanded?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer income.
Correct Answer: a) The quantity demanded decreases.
45. **Consumer Behavior and Elasticity**:
Question: Which of the following goods is more likely to have a price elasticity of demand greater than 1?
a) A necessity.
b) An inferior good.
c) A luxury good.
d) An inelastic good.
Correct Answer: c) A luxury good.
46. **Consumer Choices and Income Effect**:
Question: When the price of a necessity increases, what happens to the income effect?
a) The income effect reinforces the substitution effect.
b) The income effect opposes the substitution effect.
c) There is no income effect for necessities.
d) The income effect and the substitution effect cancel each other out.
Correct Answer: b) The income effect opposes the substitution effect.
47. **Consumer Preferences and Substitution Effect**:
Question: What does the substitution effect measure when the price of a good rises?
a) The change in consumer income.
b) The change in consumer preferences.
c) The change in quantity demanded due to consumers switching to the cheaper good.
d) The change in quantity demanded due to increased consumer savings.
Correct Answer: c) The change in quantity demanded due to consumers switching to the cheaper good.
48. **Price Changes and Total Effect**:
Question: If the price of a good falls, leading to an increase in quantity demanded, and the magnitude of the income effect is smaller than the substitution effect, what can be said about the total effect?
a) The total effect is positive.
b) The total effect is negative.
c) The total effect is zero.
d) The total effect is indeterminate.
Correct Answer: a) The total effect is positive.
49. **Consumer Choices and Giffen Goods**:
Question: What typically happens to the quantity demanded of a Giffen good when its price rises?
a) The quantity demanded decreases.
b) The quantity demanded increases.
c) The quantity demanded remains unchanged.
d) It depends on consumer preferences.
Correct Answer: b) The quantity demanded increases.
50. **Price Changes and Income Effect**:
Question: When the price of a normal good rises, what happens to the income effect?
a) The income effect reinforces the substitution effect.
b) The income effect opposes the substitution effect.
c) There is no income effect for normal goods.
d) The income effect and the substitution effect cancel each other out.
Correct Answer: b) The income effect opposes the substitution effect.
