Economics
Consumer Preferences
Consumer preferences refer to the specific tastes and desires of individuals when making consumption choices. These preferences are influenced by factors such as price, quality, and personal inclinations. Understanding consumer preferences is crucial for businesses and policymakers in determining product offerings, pricing strategies, and market demand.
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9 Key excerpts on "Consumer Preferences"
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
The basic model focuses on two important factors influencing consumer behavior. First is the consumers’ preferences, or tastes, over various combinations of goods. Second is the ability of consumers to acquire goods as determined by income and the prices of the goods. Consumer Preferences Everyday observation tells us that consumers differ widely in their preferences: some like liver, others despise it; some smoke cigarettes, others avoid cigarette smoke like the plague; some want a different pair of shoes for every occasion, others wear running shoes every- where. Given such diversity in preferences about goods, how should we incorporate the influence they have on consumer choices? To deal with this problem, economists base their analysis on some general propositions about consumer behavior that are widely believed to be true. These propositions do not explain why people have the exact tastes they do; they only identify some characteristics shared by the preferences of virtually everyone. Economists make three assumptions about the typical consumer’s preferences. First, we assume that preferences are complete in the sense that a consumer can rank (in order of preference) all market baskets. In other words, between a McDonald’s Big Mac and a Burger King Whopper hamburger, the consumer prefers the Big Mac to the Whopper, prefers the Whopper to the Big Mac, or is indifferent between the two. We say a consumer is indifferent between two options when both are equally satisfactory. Importantly, this preference ranking reflects the relative desirability of the options themselves and ignores their cost. For example, it is not inconsistent for a consumer to prefer a Mercedes to a Chevrolet automobile but to buy the Chevrolet.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
For instance, do changes in prices matter more or less than changes in a consumer’s income? Can a small change in circumstances alter the consumers’ perception of a product or even of their own resources? While many choices may seem straightforward, there is often much more to consider. Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that we can analyze individuals’ decisions, such as what goods and services to buy, as choices we make within certain budget constraints. Generally, consumers are trying to get the most for their limited budget. In economic terms they are trying to maximize total utility, or satisfaction, given their budget constraint. Everyone has their own personal tastes and preferences. The French say: Chacun à son goût, or “Each to his own taste.” An old Latin saying states, De gustibus non est disputandum or “There’s no disputing about taste.” If people base their decisions on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make? An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. However, economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live. This chapter introduces the economic theory of how consumers make choices about what goods and services to buy with their limited income. The analysis in this chapter will build on the budget constraint that we introduced in the Choice in a World of Scarcity chapter. This chapter will also illustrate how economic theory provides a tool to systematically look at the full range of possible consumption choices to predict how consumption responds to changes in prices or incomes.
eBook - PDF- Dale Southerton(Author)
- 2011(Publication Date)
- SAGE Publications, Inc(Publisher)
Preference formation occurs, but its study is neither useful for economics nor prop-erly economics. With such an approach, however, the main motive force for participation in markets 1144 Preference Formation is ruled out as a noneconomic question. Preferences are referred to as mere subjective “tastes,” for which there is no accounting. While new schools of eco-nomic thought (institutional economics, information economics, political economy, humanistic econom-ics, socioeconomics) have loosened this axiom and do see the process of formation as being decisive for the preferences themselves, mainstream economics largely adheres to its dogma. Economists claim that it is essential for the purity of analysis; in fact, however, its consequences are less innocent since the assump-tion of “untouchable” preferences heavily impacts political thought and governmental action. As opposed to economic models, preferences in cultural theory are endogenous, that is, internal to organizations, so that they emerge from social interaction. People discover their preferences by evaluating how their past choices have strengthened or weakened their relationships with other people. Social feedback and reinforcement teach them what to prefer, since what matters most to people is their relationship with other people. Based on a richer understanding of economics, socioeconomics has developed more encompassing models of Consumer Preferences. Socioeconomics challenges the tradition of standard economics and proposes an alternative model of preference forma-tion, which is built on four selves that correspond to four types of preferences: actual preferences , metapreferences , true preferences , and unrestrained preferences . Actual preferences reflect the capacity to use and appreciate goods, named “consumption capital.” The idea of a “refinement of tastes” or enhancement of consumer capital has already been aired by the classic John Stuart Mill and later by Gary Becker.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Introduction to Consumer Choices In this chapter, you will learn about: Chapter 6 | Consumer Choices 133 • Consumption Choices • How Changes in Income and Prices Affect Consumption Choices • How Consumer Choices Might Not Always be Rational Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that we can analyze individuals’ decisions, such as what goods and services to buy, as choices we make within certain budget constraints. Generally, consumers are trying to get the most for their limited budget. In economic terms they are trying to maximize total utility, or satisfaction, given their budget constraint. Everyone has their own personal tastes and preferences. The French say: Chacun à son goût, or “Each to his own taste.” An old Latin saying states, De gustibus non est disputandum or “There’s no disputing about taste.” If people base their decisions on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make? An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. However, economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live. This chapter introduces the economic theory of how consumers make choices about what goods and services to buy with their limited income. The analysis in this chapter will build on the budget constraint that we introduced in the Choice in a World of Scarcity chapter. This chapter will also illustrate how economic theory provides a tool to systematically look at the full range of possible consumption choices to predict how consumption responds to changes in prices or incomes.
- Roberto Serrano, Allan M. Feldman(Authors)
- 2018(Publication Date)
- Cambridge University Press(Publisher)
Part I Theory of the Consumer 2 Preferences and Utility 2.1 Introduction Life is like a shopping center. The consumer enters it and sees lots of goods, in various quantities, that she might buy. A consumption bundle , or a bundle for short, is a combination of quantities of the various goods (and services) that are available. For instance, a consumption bundle might be 2 apples, 1 banana, 0 cookies, and 5 diet sodas. We would write this as ( 2, 1, 0, 5 ) . Of course, the consumer prefers some consumption bundles to others; that is, she has tastes or preferences regarding those bundles. In this chapter, we will discuss the economic theory of preferences in some detail. We will make various assumptions about a consumer’s feelings about alternative consumption bundles. We will assume that when given a choice between two alter-native bundles, the consumer can make a comparison. (This assumption is called completeness .) We will assume that when looking at three alternatives, the consumer is rational in the sense that, if she says she likes the first better than the second and the second better than the third, she will also say that she likes the first better than the third. (This is part of what is called transitivity .) We will examine other basic assumptions that economists usually make about a consumer’s preferences: one says that the consumer prefers more of each good to less (called monotonicity ), and another says that a consumer’s indifference curves (or sets of equally desirable consumption bundles) have a certain plausible curvature (called convexity ). We will describe and discuss the consumer’s rate of tradeoff of one good against another (called her marginal rate of substitution ). After discussing the consumer’s preferences, we will turn to her utility function .
eBook - PDFEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
Finally, by superimposing what the consumer would like to do onto what the consumer can do, we arrive at a model of what the consumer would do under various circumstances. Then by changing prices and income, the model develops consumer demand as a logical extension of consumer choice theory. Although consumer choice theory attempts to model consumers’ preferences or tastes, it does not have much to say about why consumers have the tastes and preferences they have. It still makes assumptions, but does so at a more fundamental level. Instead of assuming the existence of a demand curve, it derives a demand curve as an implication of assumptions about preferences. Note that economists are not attempting to predict the behavior of any single consumer in any given circumstance. Instead, they are attempting to build a consistent model of aggregate market behavior in the form of a market demand curve. Once we model the consumer’s preferences, we then recognize that consumption is governed not only by preferences but also by the consumer’s budget constraint (the ability to purchase various combinations of goods and services, given the consumer’s income). Putting preference theory together with the budget constraint gives us the demand curve we are seeking. In the following sections, we explore these topics in turn. 3. UTILITY THEORY: MODELING PREFERENCES AND TASTES At the foundation of consumer behavior theory is the assumption that the consumer knows his or her own tastes and preferences and tends to take rational actions that result in a more 60 Economics for Investment Decision Makers preferred consumption bundle over a less preferred bundle. To build a consistent model of consumer choice, we need to begin with a few assumptions about preferences. 3.1. Axioms of the Theory of Consumer Choice First, let us be clear about the consumption opportunities over which the consumer is assumed to have preferences.
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
In effect, consumer choice theory first models what the consumer would like to consume, and then it examines what the consumer can consume with limited income. Finally, by superimposing what the consumer would like to do onto what the consumer can do, we arrive at a model of what the consumer would do under various circumstances. Then by changing prices and income, the model develops consumer demand as a logical extension of consumer choice theory. Although consumer choice theory attempts to model consumers’ preferences or tastes, it does not have much to say about why consumers have the tastes and preferences they have. It still makes assumptions, but does so at a more fundamental level. Instead of assuming the existence of a demand curve, it derives a demand curve as an implication of assumptions about preferences. Note that economists are not attempting to predict the behavior of any single consumer in any given circumstance. Instead, they are attempting to build a consistent model of aggregate market behavior in the form of a market demand curve. Once we model the consumer’s preferences, we then recognize that consumption is governed not only by preferences but also by the consumer’s budget constraint (the ability to purchase various combinations of goods and services, given the consumer’s income). Putting preference theory together with the budget constraint gives us the demand curve we are seeking. In the following sections, we explore these topics in turn. 3. UTILITY THEORY: MODELING PREFERENCES AND TASTES At the foundation of consumer behavior theory is the assumption that the consumer knows his or her own tastes and preferences and tends to take rational actions that result in a more preferred consumption bundle over a less preferred bundle. To build a consistent model of consumer choice, we need to begin with a few assumptions about preferences. 3.1
eBook - PDF- David R. Just(Author)
- 2013(Publication Date)
- Wiley(Publisher)
PART 4 SOCIAL PREFERENCES Thus far, we have focused on how people deviate from standard models of economics owing to misperceptions or miscalculations or by using heuristics in their decision framework. A vibrant branch of behavioral economics examines how people deviate from standard models because of the way they incorporate others’ actions or well-being into their own preferences. We commonly experience the kindness of others, often in cases where others appear to receive no reward for their behavior. At other times, we might feel that an colleague or teacher has it in for us and seem to be willing to damage us even if it means they must damage themselves in the process. Moreover, we may be motivated to treat someone dif- ferently depending not just on their actions but also on the motives we believe they possess. Thus, we might appreciate a heartfelt and sincerely given gift. However, if the same gift is given by someone trying to win our favor for some selfish purpose, we might just as soon decide to return the gift. So much of our behavior is shaped by our social interactions with others, it would be hard to ignore the impact. For this reason, studies examining the impact of social preferences have a long history in economics. Behavioral economists have added to this literature by exam- ining how these social preferences are formed and manifested and the effect they have on economic transactions. From the impact on savings rates to the rate of recovery from dis- asters, social preferences have major effects not only within the family but also in business management and public policy. The next three chapters provide an introduction to social preferences. We begin by examining the nature of altruistic behavior, or kindness shown to others. Although altruism is not necessarily irrational, the majority of economic models assume purely selfish motives. Chapter 15 examines the desire people have for fairness; this leads them to seek evenly divided rewards.
eBook - PDF- David M. Kreps(Author)
- 2020(Publication Date)
- Princeton University Press(Publisher)
part I Individual and social choice chapter two The theory of consumer choice and demand Prologue to part I The central figure in microeconomic theory is the consumer, and the first step is almost always to provide a model of the consumer's behavior. This model may be substantially implied (see the discussion in 8.1 on demand curves), but it is there at some level. We usually think of the consumer as an entity who chooses from some given set of feasible options, and so our first order of business, which takes up most of part I, is to provide models of consumer choice. You will recall from intermediate micro (and even most principles courses) the representation of consumer choice given in figure 2.1. We imagine a consumer who consumes two goods, say wine, denominated in numbers of bottles, and beer, denominated in numbers of cans. Imagine that this consumer has $1,000 to spend, the price of beer is $1 per can, and the price of wine is $10 per bottle. Then our consumer can purchase any combination of beer and wine in the shaded area in figure 2.1. The consumer has preferences over combinations of beer and wine represented by indifference curves; these are the curves in figure 2.1. All Bottle of wine 100 _The budget set /o irecti?n of mcreasmg preference X _ -_-_;.Indifference ~--_, -··· / curves 1000 Cans of beer Figure 2.1. The usual picture for consumer demand. 18 Chapter two: The theory of consumer choice and demand points along a given curve are bundles of beer and wine that the consumer rates as being equally good (so she is indifferent among them), and the consumer prefers to be further out, in the direction of the heavy arrow. Hence this consumer selects the point marked x, the point on the highest indifference curve that still is affordable given prices and the consumer's level of income.
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