Final answer:
The theory of consumer behavior considers consumers to make rational choices based on limited income, prices of goods and services, and personal preferences, aiming to maximize utility. The statement presented is false, as the theory does not assume unlimited income.
Step-by-step explanation:
The assertion that the theory of consumer behavior assumes consumers make rational choices based on unlimited income and a set of product prices is false. Instead, economic theories recognize that people make consumption choices based on their limited income and the prices of goods and services, along with personal preferences and factors like where they live. This theory suggests that individuals aim for the highest level of utility or satisfaction from their choices, whereby greater consumption leads to higher total utility, but with diminishing marginal utility as more of the same good is consumed.
Changes in income and prices lead to shifts in consumption choices; normal goods see an increase in demand with higher incomes, while inferior goods see a decrease. Conversely, when prices rise, the demand for those goods typically falls, with the degree of change dependent on individual preferences. These intricacies are part of the budget constraint framework, demonstrating the complexity of consumer choice within economic analysis.