Consumer Preference and Microeconomics
"Consumers, by definition, include us all." - John F Kennedy, 1962 Demand and Supply are perhaps the most fun damental concepts of microeconomics. It is the consumers, like us, who create demand and the underlying economic theory of consumer demand is that we, as consumers always choose the best bundle of goods that we can afford. The microeconomic model for consumer preference begins with a simplifying assumption (that economics is famous for) - Consumers have to make a choice between two goods, say Product 1 and Product 2, whose quantities x 1 and x 2 they choose to consume. This is known as the customer’s consumption bundle. Consumption Bundle- ( x 1, x 2) For example, if I as a consumer make a choice between two fruits- Apples(A) and Oranges (O), and if I choose to consume 6 Apples and 3 Oranges, my consumption bundle would be X= (6A, 3O). Now, an important factor that is an integral part of consumer preference, is the budget that the consumer has, whic...