The correct answer is D. Consumer prefers a combination of more goods to less in any situation.
The theory of revealed preference is a microeconomic theory that explains how consumers make choices under conditions of scarcity. It is based on the assumption that consumers always behave rationally to maximize their satisfaction from a given income. This means that consumers will always choose the combination of goods that gives them the most satisfaction, given their budget constraints.
The theory of revealed preference is based on the following assumptions:
- There is transitivity in consumer’s preferences. This means that if a consumer prefers bundle A to bundle B, and bundle B to bundle C, then they will also prefer bundle A to bundle C.
- There is consistency of choice in consumer’s behavior. This means that if a consumer chooses bundle A over bundle B in one situation, they will also choose bundle A over bundle B in another situation, given the same budget constraints.
- Consumer always behaves rationally to maximize his satisfaction from a given income. This means that consumers will always choose the combination of goods that gives them the most satisfaction, given their budget constraints.
The theory of revealed preference can be used to explain a variety of consumer behavior, such as why consumers buy more of a good when its price decreases, and why consumers substitute one good for another when the price of one good changes relative to the price of another good.
The theory of revealed preference is a powerful tool for understanding consumer behavior. However, it is important to note that it is based on a number of assumptions. If these assumptions are not met, then the theory may not be accurate in explaining consumer behavior.
In the case of option D, the assumption that consumers always prefer a combination of more goods to less in any situation is not always met. For example, a consumer may prefer to have a smaller number of high-quality goods to a larger number of low-quality goods. In this case, the consumer is not necessarily maximizing their satisfaction, but rather they are choosing a combination of goods that gives them a higher level of utility.