What is preferences and utility

Harini Best Answer

preferences- is the choice made by consumer while consuming 2 or more commodities. preferences for a commodity is made by using relative utility of that product in comparison with the other products he consumes at the same period of time. utility - is the level of satisfaction that a consumer derive while consuming a particular product. lexicographic ordering - it is the preference made by the consumer given a list of bundle to be chosen.( consider he consumes two commodities X and Y out of which Y is a neutral ie., it doesn't add any any level of satisfaction to the consumer.) in that situation the consumer will choose a bundle on which there is more X and irrespective of the quantity of Y. utility function- it is the measure of satisfaction that a consumer drives from consuming 1 or more commodities. it a mathematical function that represents the individual utility in numerical form. under revealed preference approach there is no utility function. there are totally 4 axioms that Paul Samuelson used in his theory. they are consistency- that the consumer should be consistent in his preference. transtivity - if a consumer chooses A>B and B>C and he must always A>C. rationality -that a consumer must be rational ( he must always aims to maximize his utility) so he prefer more to less. revealed preference axiom- consumer chooses a particular bundle to other sets of bundle under a budget situation, it is said to be revealed prefered to other. Under any other budget condition it should be same. The revealed prefered bundle should not be less preferable bundle to any other alternatives in any other budget situation.