Consumer Preferences and Microeconomics

Consumer preferences plays a huge role in Economics as it is important to understand the relationship between preferences and consumer demand curves. A supplier's duty is to figure out what consumers prefer so that their products stand higher than that of their competitors' A consumer is rightly crowned as the King of Microeconomics as he sets the tone for the seller from choosing the product to fixing the price. 

Preferences vary from each other. Consumer preferences don't depend on the income and the price. For example, Rahul (consumer) can have a preference for Rolex watch over Timex even though he cannot afford it. Consumer preferences allow a consumer to rank different bundles of goods according to levels of utility, or the total satisfaction of consuming a good or service. Commodities have alternative uses which is one of the major concerns in microeconomics as a result of which a consumer is supposed to choose his product with utmost perfection. Adding to this concern, he has unlimited wants with only limited resources. Preferences are crucial as only then the consumers would get satisfied and suppliers try to satisfy the consumers through their products. 

Let's understand consumer preferences with the help of it's 3 basic assumptions. 

Completeness

This assumption take place whenever the consumer doesn't have any indifference between the two goods. For instance, Aditya has Coke and Pepsi in front of him and he has to choose one among them assuming that he is able to compare them them and come to a conclusion.

Transitivity

This assumption is based on a relationship between goods. (If A belongs to B and B belongs to C, then A should belong to C as well). In simple words if Kumar prefers Apples over Oranges and Oranges over Bananas, then he will prefer Apples over Bananas as well.

Non-Satiation

This assumption states that a consumer will always want more and more of two goods as there is no point of satiation. For example, Ravi will always prefer 6 chocolates, 3 cakes to 3 chocolates, 1 cake. 

Consumer preference is crucial to Microeconomics. Concepts such as utility, budget line, indifference curve, and indifference map sound complex at once but are easy to understand as can be.

Further, there are two important methods to approach Consumer preferences. 

They are Cardinal and Ordinal.

Cardinal Utility Approach also known as Marginal Utility Analysis states that utility is measurable in number. The unit of measurement for utility is utils. Thus, those goods that give a consumer higher level of satisfaction will be assigned higher utils than those which give the consumer lower satisfaction. Cardinal theory is quantitative method of utility measurement.

Ordinal Utility Approach also known as Indifference Curve Analysis states that satisfaction derived from a commodity cannot be expressed in utils. It uses ranks to describe different levels of utility. Thus, goods that provide a higher level of satisfaction should be assigned higher ranks than those which give the consumer lower satisfaction. The Ordinal theory is a qualitative method of utility measurement.

Conclusion

 Not always multiple choices comes in handy. The rightly crowned King of microeconomics will always have the confusion between choosing tea and coffee, Coke and Pepsi, Colgate and Pepsodent, etc. But still, his significance can never be ignored.