Cambridge A Level Economics: Utility, indifference curves and budget lines (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 7.1 and 7.2 (outcomes 7.1.1 to 7.2.4) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topics 1 to 6 are AS Level content and topics 7 to 11 are A Level content, so this unit is A Level only. All consumers and figures are invented, and money is in currency units (cu). Read the study guide and the revision notes first. The course hub and checklist show the rest of the syllabus.

Questions

1. Distinguish between total utility and marginal utility. [2]

2. An invented consumer’s total utility from weekly visits to a climbing wall is: 1 visit 26, 2 visits 46, 3 visits 60, 4 visits 68, 5 visits 72, 6 visits 72, 7 visits 68 utils.

(a) Calculate the marginal utility of the 3rd, 5th and 7th visit. [3] (b) State the number of visits that maximises total utility and the marginal utility at that point. [2] (c) Explain the pattern of marginal utility. [2]

3. Fran has 40 cu to spend on good F (4 cu each) and good G (6 cu each). Marginal utility in utils:

Unit	1	2	3	4	5	6	7
F	40	32	24	16	8	4	0
G	54	42	30	24	12

(a) Find the bundle that maximises her total utility and show that the equi-marginal principle holds. [3] (b) Calculate her total utility at that bundle and at 7 units of F with 2 units of G. Comment. [3]

4. A good has marginal utility 36, 30, 24, 18, 12 and 6 utils for units 1 to 6. Each cu of income is worth 3 utils to the consumer.

(a) Calculate the quantity bought at a price of 9 cu and at 5 cu. [2] (b) Explain why the individual demand curve slopes downward. [2]

5. Evaluate the limitations of marginal utility theory. [6]

6. A consumer has income 360 cu. Good X costs 12 cu and good Y costs 18 cu.

(a) Calculate the intercepts of the budget line. [2] (b) Calculate its slope. [1] (c) The price of X falls to 9 cu. Describe and quantify the change. [2] (d) Both original prices rise by 20 per cent. Describe and quantify the change. [2]

7. Points on one indifference curve for goods X and Y are A (2, 36), B (4, 18), C (6, 12), D (9, 8) and E (12, 6).

(a) Calculate the MRS of X for Y from A to B, B to C and C to D. [3] (b) Explain what the pattern shows about the shape of the curve. [1] (c) Income is 72 cu, X costs 6 cu and Y costs 3 cu. Show that C is the optimum. [3]

8. A consumer has income 200 cu. Y costs 10 cu. The price of X falls from 10 cu to 5 cu. Quantities of (X, Y): original optimum (8, 12), new optimum (20, 10), and the compensated point at the new price ratio on the original curve (12, 9.5).

(a) Calculate the income of the compensated budget line, at the new prices. [1] (b) Calculate the substitution effect, the income effect and the price effect on X. [3] (c) Explain why X is a normal good. [2] (d) State two points on the consumer’s demand curve for X. [2]

9. A consumer has income 150 cu. Y costs 10 cu. The price of Z rises from 5 to 6 cu. Quantities of Z: original optimum 20 (with 5 of Y), compensated point 17 (with 6.8 of Y), new optimum 19 (with 3.6 of Y).

(a) Calculate the income that keeps the original bundle affordable at the new prices. [1] (b) Calculate the substitution, income and price effects on Z. [3] (c) Classify Z, justifying your answer. [2]

10. Explain why a Giffen good must be an inferior good, but most inferior goods are not Giffen goods. [4]

11. Evaluate how useful indifference curve analysis is for explaining consumer behaviour. [8]

Answers

1. Total utility is the satisfaction from all units consumed [1]. Marginal utility is the extra satisfaction from one more unit [1]. [2] Examiner insight: Answers tend to gain credit when both terms are defined in the same sentence structure, with “all units” set against “one more unit”.

2. (a) MU of 3rd = 60 − 46 = 14 [1]. MU of 5th = 72 − 68 = 4 [1]. MU of 7th = 68 − 72 = −4 [1]. [3] (b) TU is highest at 5 or 6 visits (72) [1] and MU of the 6th is 0 [1]. [2] (c) MU falls from 26 to 4 and then below zero [1], because each extra visit adds less satisfaction as wants are met and tiredness sets in (diminishing marginal utility) [1]. [2] Examiner insight: Keep the sign of a negative marginal utility, and link the fall to the number of units consumed in a given time.

3. (a) MU per cu for F: 10, 8, 6, 4, 2, 1, 0. For G: 9, 7, 5, 4, 2 [1]. Buy the units with the highest ratios until 40 cu is spent: 4 units of F and 4 units of G [1]. Cost = 16 + 24 = 40 cu, and the last unit of each has MU per cu = 4, so the ratios are equal [1]. [3] (b) TU at (4, 4) = (40 + 32 + 24 + 16) + (54 + 42 + 30 + 24) = 112 + 150 = 262 [1]. TU at (7, 2) = 124 + 96 = 220, which also costs 28 + 12 = 40 cu [1]. The alternative gives 42 fewer utils at the same cost, so the equal-ratio bundle is better [1]. [3] Examiner insight: Show the ratio for each unit and compare bundles of equal cost. Comparing bundles of different cost proves nothing.

4. (a) At 9 cu, buy while MU ≥ 27: units 1 and 2, so 2 units [1]. At 5 cu, buy while MU ≥ 15: units 1 to 4, so 4 units [1]. [2] (b) Marginal utility diminishes with each extra unit [1]. A lower price makes lower-value units worth buying, so quantity demanded rises as price falls [1]. [2] Examiner insight: State the assumption that the marginal utility of money stays constant. Without it the derivation is incomplete.

5. Utils cannot be measured, so the numbers are not observable [1]. The marginal utility of money is unlikely to be constant when prices change a lot [1]. Consumers may be influenced by habit, advertising, or limited information, so they may not equalise MU per cu [1]. Goods are not independent: complements and substitutes affect each other’s MU [1]. Judgement: the theory still explains why demand slopes downward and gives a clear rule for allocation [1], so it is a useful model, but it is weaker as a tool for predicting precise choices [1]. [6] Examiner insight: A list of limitations gains little. Weigh how far each one damages the theory’s main result.

6. (a) X intercept = 360 ÷ 12 = 30 [1]. Y intercept = 360 ÷ 18 = 20 [1]. [2] (b) Slope = 12 ÷ 18 = 0.67 (2/3) [1]. [1] (c) The line pivots outward on the Y intercept [1]. The X intercept becomes 360 ÷ 9 = 40, and the Y intercept stays at 20 [1]. [2] (d) The line shifts inward in parallel [1]. New intercepts are 360 ÷ 14.4 = 25 for X and 360 ÷ 21.6 = 16.7 for Y, equal to an income of 300 cu at the old prices [1]. [2] Examiner insight: Name the intercept that stays fixed in a pivot, and give the numbers for both intercepts.

7. (a) A to B: 18 Y given up for 2 X, so MRS = 9 [1]. B to C: 6 ÷ 2 = 3 [1]. C to D: 4 ÷ 3 = 1.33 [1]. [3] (b) The MRS diminishes, so the curve is convex to the origin [1]. [1] (c) C costs 6 × 6 + 3 × 12 = 72 cu, so it is affordable [1]. B and D cost 78 cu each, which is unaffordable [1]. The price ratio is 6 ÷ 3 = 2, which lies between the MRS from B to C (3) and from C to D (1.33), so C is the best affordable point [1]. [3] Examiner insight: Compare the MRS with the price ratio and say which way the consumer would move. A statement that C is “tangent” needs this support.

8. (a) 5 × 12 + 10 × 9.5 = 155 cu [1]. This is slightly below the 160 cu that would rebuy the original bundle. [1] (b) Substitution effect = 12 − 8 = +4 [1]. Income effect = 20 − 12 = +8 [1]. Price effect = +12 [1]. [3] (c) A fall in price raises real income, and quantity rises through the income effect [1]. Both effects raise quantity, so X is a normal good [1]. [2] (d) At 10 cu, 8 units [1]. At 5 cu, 20 units [1]. [2] Examiner insight: Give price and quantity together for each demand point. Pairs reversed or without units lose clarity.

9. (a) 6 × 17 + 10 × 6.6 = 168 cu [1]. This is slightly below the 170 cu that would rebuy the original bundle. [1] (b) Substitution effect = 17 − 20 = −3 [1]. Income effect = 19 − 17 = +2 [1]. Price effect = −1 [1]. [3] (c) Z is an inferior good, because the fall in real income raises its quantity (income effect +2) [1]. It is not a Giffen good, because the income effect is smaller than the substitution effect and quantity falls when price rises [1]. [2] Examiner insight: Compare the sizes of the two effects. Naming the signs without comparing them does not settle whether the good is Giffen.

10. A Giffen good is one for which quantity demanded rises when price rises [1]. This requires an income effect that outweighs the substitution effect [1]. The income effect works against the substitution effect only for an inferior good, where lower real income raises demand [1]. Most inferior goods take a small share of the budget, so the income effect is too small to outweigh the substitution effect [1]. [4] Examiner insight: Use the sequence price rise, fall in real income, extra demand for the inferior good, and compare the two effects.

11. Strengths: it separates the income and substitution effects and shows how a change in price or income alters choice [1]. It needs only a ranking of bundles, not measurable utils [1]. It explains why a Giffen good is possible, which MU theory cannot [1]. Weaknesses: only two goods can be drawn [1], the curves cannot be observed [1], and it assumes rational, consistent, well-informed consumers with stable tastes [1]. Judgement: it is a model for understanding the logic of choice, so it is most useful for explaining why behaviour changes [1]; it is less reliable for predicting exact choices without real data [1]. [8] Examiner insight: Strong evaluation reaches a conclusion that depends on what the model is being used for.

Where marks are usually lost

• Using total utility where marginal utility is asked for.
• Choosing units by highest MU rather than highest MU per cu.
• Comparing bundles that cost different amounts.
• Pivoting the budget line on the wrong intercept.
• Forgetting that the substitution effect holds real income constant.
• Calling every inferior good a Giffen good.
• Listing limitations without weighing them.

Next steps

• Review the revision notes and the study guide.
• Return to the course hub and the printable checklist.
• Practise the earlier price system questions.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, sections 7.1 and 7.2 (Cambridge University Press & Assessment).