indifference curve a curve showing combinations of quantities of two
Introduction
Microeconomic analysis deals fundamentally with how decision makers react to scarcity. As incomes are finite, the consumer suffers a scarcity of income and must therefore choose carefully which goods to consume. Purchasing more of one good implies consum- ing less of another. The theory of consumer behaviour studies how individual consumers react to such scarcity. In this chapter we will develop a model of consumer choice. This will require us to make certain assumptions regarding the motivation of consumers.
The theory of consumer behaviour provides many valuable insights into the nature of choice and the basic model has many practical applications. As illustration we will look at a characteristics approach to consumer demand and an analysis of the individual’s choice between work and leisure.
The chapter looks at aspects of consumer behaviour using an indifference curve
approach. To develop the model we must initially examine the basis of consumer choice
goods such that the including the concepts of consumer rationality, consistency and transitivity. The model
individual obtains
equal satisfaction from those combinations and is therefore
indifferent between them