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4-3 - False A change in tastes is represented in consumer...

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Unformatted text preview: False. A change in tastes is represented in consumer theory as a shift in a persons le. Under normal circumstances? the microeconomic theory does not allow consumer preferences to be affected by a change in prices. People may consume less of a good as a consequence of the higher price, but this should not be mistaken for a change in tastes or preferences. (Note: the lC"s & demand curve in the previous answer do NOT shift as price changes.) “Neoclassical economic theory of consumer behayiour“ assumes that consumers are “rational“. “Habitual behaviour“ is not consistent with rationality fit is assumed not to occur. But in the “real world“ ['= outside the world of theory} it is possible that a person might go through life “habitually“ consuming only bananas {because of a habit formed as a child} & without ever tasting kiwi fruit. Suppose one day the supply of bananas decreases because the crop is destroyed by bad weather. 1When the person starts to eat kiwi fruit [because no bananas are available} he finds he likes kiwi fruit ti so his “preferences change“. This is because his habitual behayiour is disrupted. But such a situation is not consistent with econ. theory which assumes preferences to be “rational“, & rationality is based on the assumption of “completeness. Conrrnued on the next suds. ...
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