Theory of Consumer Behavior — Practice Quiz

Marginal utility is the change in total utility due to consumption of one additional unit, Marginal utility generally diminishes with increase in consumption, Marginal utility can be negative, When marginal utility is zero, total utility is maximum

Marginal utility is the additional satisfaction from consuming one more unit. It follows the law of diminishing marginal utility, can become negative when total utility starts declining, and total utility is maximized when marginal utility becomes zero.

They slope downward from left to right, Higher indifference curves represent higher utility, They are generally convex to the origin

Indifference curves slope downward due to trade-offs between goods, higher curves mean more satisfaction, they cannot intersect (would violate consistency), and are convex due to diminishing marginal rate of substitution.

It shifts outward parallel to the original line

When income increases with constant prices, the consumer can afford more of both goods. This causes a parallel outward shift of the budget line, maintaining the same slope (price ratio) but allowing access to higher consumption bundles.

MRS equals the price ratio (P₁/P₂)

At the consumer's optimum, the budget line is tangent to the indifference curve, meaning their slopes are equal. The slope of the indifference curve is MRS, and the slope of the budget line is the price ratio P₁/P₂.