As a social scientist, I would just like to come right out and acknowledge my bias. Between chocolate, vanilla, and strawberry ice cream, chocolate is my favorite, followed by vanilla, then strawberry.This article is intended to explain a fundamental concept in microeconomics, consumer preferences, using a sweet example. To model consumer behavior, economists look at how consumers make comparisons between goods.
Briefly, some notes on notation. If I said, “I like chocolate better than vanilla ice cream,” it would be written as Chocolate ≻ Vanilla. (Note, ≻ is not the same as >, which is used for ordering preferences) If I wanted to say “I like vanilla ice cream, but not that much more than strawberry, it would be written as Vanilla ≽Strawberry. This relationship would be called a weak preference, as opposed to the first example, which would be a strict preference. Lastly, if you didn’t care whether you had strawberry or chocolate, the relationship would be called, unsurprisingly, indifferent. It would be written as Strawberry ∼ Chocolate. So in review: strict preference ≻, weak preference ≽, indifference ∼.
In order to make this comparison a little less one-dimensional, economists create consumption bundles, which are ordered pairs (X1,X2) that denote levels of consumption of two goods. In bundles, consumers will prefer whichever bundle will bring them more satisfaction. For example, if there is a bundle A which has 2 scoops of chocolate ice cream (X1) and 1 scoop of vanilla ice cream (X2), and a bundle B which has 1 scoop of chocolate and 2 scoops of vanilla, I would prefer bundle A to bundle B, because I like chocolate better. Or, if you were to write it out, A ≻ B, where A=(2,1) and B=(1,2).
So I don’t try and teach a couple of chapters of microeconomic theory in one blog post, I will end on some properties of consumer preferences which economists commonly assume. These are:
-Completeness, or that all pairs of bundles can be compared using ≻, ≽, or ∼.
-Transitivity, or that preferences are consistent. For example, if I said I prefer chocolate to vanilla, and prefer vanilla to strawberry, it would violate transitivity for me to prefer strawberry to chocolate. ( if C≻V and V≻S, then I couldn’t prefer S≻C)
-Monotonicity, or that a greater quantity of a good is preferred to a smaller quantity of a good. Often it is stated as, “more is more.”
Lastly, I’ll leave with you one of my favorite stickers of all time,