CONSUMER PREFERENCES IN MICROECONOMICS

Leo and Cristiano are two friends, they are both football lovers and so they decided to buy new football boots for themselves. Leo buys his boots from Adidas while Cristiano buys his boots from NIKE. Why did they chose two different brands? Why do consumers prefer different goods and services? The answer to these questions would be 'preferences'. Preference was the driving factor that made these two consumers choose one brand over the other. In the contemporary world people often select one good over the other based on certain preferences. Consumer preference can be defined as a set of assumptions that focuses on consumer choices that ultimately result in satisfaction. The entire process of consumer preference results in an optimal choice.   

WHY PREFER ONE OVER THE OTHER?


In the earlier example we understood that preference was the factor that made Leo and Cristiano chose one good over the other but do you think that preference is the only factor which determines what one is going to buy? Preference is certainly a crucial factors which helps the  consumer in choosing the product they desire but it is not the only factor. Let's understand this using an example. Neymar's old car has become obsolete and he is planning on buying a new one. He is a big fan of Audi and he is well aware that no other car can give him better levels of satisfaction but even so he ends up buying a SWIFT. It is important to understand that these preferences are not dependant on prices or a consumers income. Neymar can have a preference for an Audi over a swift but only has the financial income to purchase a swift.

The example given herein made us understand that preference was not the only factor that a consumer takes into account while purchasing goods and services. However this does not answers the question 'why prefer one over the other'. For this we need to understand what guides consumer preference. Central to the consumer preference is the idea of utility. What is meant by utility? Utility refers to the ability of a commodity to serve human wants. It is the amount of satisfaction a consumer gets from the consumption of goods and services. Consumer preference allows consumers to choose various  bundles of goods and services according to the utility obtained from consumption of that particular good or service. This can be done by two ways - cardinal and ordinal approach. Now according to the cardinal approach utility can be measured in number and the unit in which utility can be measured is called 'utils'. Coming back to our first example as per the cardinal approach we can say that Leo's utility obtained from using Adidas boots was 10 utils but if he chose NIKE boots, his utility would have been lesser than 10 utils and thus he chose Adidas. Now the ordinal approach says that the utility derived from consumption of a commodity cannot be measured in terms of number. This approach uses 'ranks' to describe different levels of utility. Once again taking a reference from our first example we can say that Cristiano ranked utility derived from NIKE above Adidas and so he preferred Adidas over NIKE. Thus we can say that it is utility which makes consumer prefer one good over the other 

CONCLUSION

 Consumers preference is like an ocean filled with various factors that help in determining or altering these preferences. The study of consumer preferences plays an important role in studying consumer's behaviour in the market. Economic theories assume people as rational beings who take rational decisions in every situation and yet these so called rational beings take decisions based on their preferences. Thus it becomes important for companies and markets to be dynamic and change with the changes in consumer preferences.