An Introduction to Preferences in Economy

In this article, we will take a closer look at consumers' preferences towards consumption bundles. We will look at subjects like: ‘Indifference Curve’, ‘Satiation’ and ‘The Marginal Rate of Substitution’. This article is a continuation of the former one concerning budget constraints where we looked at a simple model of consumer behavior.

Consumer Preferences

When we talked about budget constraints, we only concerned ourselves with one bundle of goods:

But now, since we are talking about preferences, we will consider two bundles:

We can now let consumers can rank them as to their desirability. That is, the consumer can determine that one of the consumption bundles is strictly better than the other, or decide that they are indifferent between the two bundles.

We can define these three kinds of preferences:

• Strictly preferred: If we want to say that we strictly prefer (x_1, x_2) in comparison to (y_1, y_2) then we can write it like so:
• Slightly preferred: If we want to say that we slightly prefer (x_1, x_2) in comparison to (y_1, y_2) then we can write it like so:
• Indifference: If we want to say that we have no preference between (x_1, x_2) and(y_1, y_2) then we can write it like so:

Assumptions about Preferences