Consumer Preference and Utility

A consumer’s preference change and so can consumer decides to maximize utility at a lower price level. For this purpose, any consumer prefers to have a number of options. Such preferences and choices are the subject matter of this chapter.

Any consumer preference has two important relation. This strict and weak preference relation decides the overall preference. This strit preference relation is defided as

X > y à x ≥ y but y ≥ x

This means x is preferred to y. here, y is also considered to be equal to x. The consumer can either prefer x or y. what consumer’s fell is depends on perception of such good. The indifference relation is defined as the tilde and it means approximately.

X ~ y à x ≥ y and y ≥ x

In other words, x is indifferent to y; alternatively, x and y are the same order of magnitude. A consumer will always try to maximize their own utility. Quite often the consumer will choose the commudity which has a lower price.

The rationality hypothesis has two basic assumptions:

1.      Completeness

Completeness means x,y,€ x, we have x ≥ y or y ≥ x or both. Any commudity is always preferred to its close subtitude. They are very different from each other it terms of characteristics. The consumer’s choice depends on the income and the taste of the same consumer.

2.      Transitivity

Transitivity is slightly different from completeness. It implies that is impossible to face the decision maker with a sequence of pairwise choics in which preferences appear tp be cyclical. Transitivity explains that consuming any goods will give equal satisfaction to the consumer. The concept will be clearer in the following assumption.

Reflexivity

Reflexivity means any commudity is as good as any other commudity. There is no difference in consumer satisfaction when any commodity is consumed.

Nonsatiation

Nonsatiation adds more characteristics of a good because it is preferred by the consumer. Each consumer expects something different from the earlier purchased commodity. Consumers regularly purchased commodities from the market and they have perfect knowledge of available commodities. Some consumers expect higher discounts in some purchased goods. In the modern world, such a discount is offered by all sellers. Most of people who visit such places go there to get commodities at bargain prices. But most economists have different opinions on the quality and quality of goods at such places, and at this point. It is the comsumer who decides what to purchase and what not to purchase.

Continuity

Consumers always try to switch to different commodities or to close substitutes. They get more satisfaction from consuming different commodities at lower prices. But other factors may make them worse off, such as changes in price, size, etc.

Strict Convexity

Strict convexity assumes that comsume preferences are related to two commodities. Given the feasible set is convex; the consumer’s optimal point will be a unique local point.