Question

Given that individuals base their consumption decisions on their own tastes and personal preferences, economists believe that we can't analyze consumer choices. True False

Answer 1

Ans) 1) False. Although people make choices based upon their tastes and preferences, economists believe that they can analyse consumer behaviour as it is also influenced by price, income etc.

2) False. Utility of a specific good or service differs from person to person.

3) False. Consumption of additional units decrease marginal utility (diminishing marginal utility). For eg- first slice of pizza might give you 5 utils of satisfaction, second slice will give you 4 utils of satisfaction and 3rd slice of pizza will give you 2 utils of satisfaction. That is, with increase in consumption, marginal utility of a good decreases.

4) When price of one good increases, budget line will rotate inwards from one side as due to increase in price, person can afford less of that good.

Option b.