Answer to Question #102745 in Microeconomics for Emma

Question

The use of indifference curves to establish a consumer’s equilibrium is purely a theoretical tool. They show the relation between two goods; they do not show prices or income and, therefore, cannot be used to determine a demand curve. How far do you agree with this statement?

Answer 1

FALSE: Indifference curve analysis can be used to analyse changes in price and income since according to this theory, a consumer always behaves in a rational manner, i.e. a consumer always aims to maximize his total satisfaction or total utility.