Consumer Preferences- An insight

We all share one thing in common, we are all consumers. Whether you are rich or poor, healthy or not, smart or not- it doesn't matter we all consume something or the other. In our daily life we make so many decisions - what to wear, where to eat, what to buy with various choices  accompanied with these decisions and end up preferring a choice over another with the sole aim of that being the best and optimal for us.

All of us in this world are not the same. We make different choices, one would prefer to stay in a mansion in Bandra while another one wants to stay in Lutyens Delhi and these preferences depend on multiple factors. 

So what is consumer preference?

Consumer preference is defined as a set of assumptions that focus on consumer choices that result in different alternatives such as happiness, satisfaction, or utility.  A consumer is able to assess the utility received from a bundle of commodities or is able to rank his preferences, thus enabling him to make an optimal decision.

Is consumption preferences related to income?

No, preferences of a consumer are independent of income and prices of the commodity. For instance Shekar would want to stay at a 5 star hotel rather than a 3 star but he can only afford a 3 star.

Consumer Preferences Assumption

Every economic student knows that any model can’t go without assumptions. There are thus, 3 main assumptions in theory of consumer preferences, let's take an example to explain each.

Anjali wants to order food, she is trying to decide whether to order Chinese or Italian. She lands up picking up Chinese since its tastier, the place she orders from is right around the corner, so quicker delivery-even the delivery boy is cute, they end up giving her a free dessert being a regular or she is just in the mood for some fried wontons and ultimately is better satisfied with this than Italian.

Italian

Chinese 

The first assumption is completeness - Anjali is able to compare and rank between the two cuisine restaurants.

The second assumption is monotonicity-"more is always good", Anjali will prefer two manchow soups and four fried wontons over one manchow soup and two fried wontons.

The third assumption is transitivity- this highlights consistent preference. If Anjali prefers fried wonton over manchow soup and manchow soup over chop suey then she prefers fried wonton over chop suey.

                                                                                              

Why is consumer preferences important in economics?

It enables one to determine the consumer demand curve since preferences are an important factor in consumer demand. Further, firms will develop, re-design their product and better their marketing strategies according to their customer’s preferences in order to retain and widen their customer base.

So, the next time you prefer and buy a product over another, your preference might just affect a MNC’s marketing-branding strategy.