Consumer Preferences

Consumer preferences describe how a consumer chooses between different baskets of goods based on their likes and priorities. Given two baskets, A and B, the consumer forms a preference between them, deciding whether they favor basket A over basket B, or the opposite. If neither basket is preferred, the consumer is indifferent between the two. To summarize, given two baskets A and B, the consumer’s preferences can be expressed as:

A ≻ B ( preference for A )

A ≺ B ( preference for B )

A = B ( indifference )

In the first case, the consumer prefers basket A, meaning it offers them more utility compared to basket B. In the second case, they prefer basket B, which provides greater utility than basket A. Finally, in the third case, both baskets provide equal utility, and the consumer has no preference between them. The concept of consumer preferences helps us understand how consumers make choices using ordinal utility, without needing to rely on cardinal utility, which measures utility in absolute terms. Faced with multiple baskets, the consumer will select the one that ranks highest in terms of preference. They organize the baskets in order of preference, dismiss the ones they don't want, and ultimately choose the top option.

Consumer preferences are illustrated on a Cartesian plane using indifference curves, which represent different combinations of goods that provide the same level of utility to the consumer.