Answer to Question #241765 in Microeconomics for Mooki2004

Question

Discuss how the idea of rationality is used in the indifference curve theory of consumer behaviour

Answer 1

Solution:

According to the indifference curve theory, an indifference curve shows combinations or bundles of two products that yield equal satisfaction and utility to the consumer, so that the consumer is indifferent as to what combination to select.

Therefore, a consumer will make choices on the basis of preferences and choose what will provide them with the greatest benefit given all the combinations along the indifference curve. Consumers are always rational if they always select the feasible option that they prefer the most by focusing on their self-interests.