A blog by Aman Ganguli and Aditya Diwakar
Wants are unlimited and so are our preferences. Preferences can be defined as the urge to obtain a given commodity out of two or more commodities when given a choice.
Before jumping to the types of preferences, we would like to introduce to you, the concept of utility.
Utility, famously, is the want-satisfying capacity of a commodity
The utility is the parameter which gives a platform to consumer preferences. Say for example you are hungry so you want something that can fill your stomach i.e. satisfy your hunger .You go to a nearby restaurant and order noodles. Consuming that noodles will provide you utility because it has satisfied your want for food to fulfill hunger.
Preferences can be classified into 3 different parts:
1. Strict Preferences: When we strictly prefer good A over good B (given a two commodity case), we will always choose A over B under any circumstance. In Economics, we can say that A > B. Now suppose the restaurant you visited has only two options in the main course noodles and rice. Since you love Chinese you obviously like noodles more than rice. In economics, we say that you strictly prefer Noodles to Rice.
2. Indifference: The consumer is indifferent between two commodities when they give him an equal amount of satisfaction. Here, A = B.Now after you have finished eating your noddle you are confused between the choice of sweet dish. You are unable to decide between Gulab Jamun (an Indian sweet) and Ice Cream because you equally like the two. In economics, we call this as being indifferent.
3. Weak Preferences: If good A is weakly preferred over B, we may or may not choose A over B at all times. Here, A >/= B.This means that you are sure that you like gulab jamun either more than or equal to ice cream and not less at any cost. So given a choice between gulab jamun and ice cream we say that you weakly prefer Gulab Jamun to Ice Cream
We now explain to you, the simple concept of Indifference Curves (IC).
An indifference curve is a graph which shows possible bundles of two goods which give an equal amount of satisfaction to the consumer. For example, if you consume only two goods say Pepsi and Pizza then indifference curve will be consist of combinations of different Pepsi and Pizza that satisfy you equally. Say for example you are equally happy with 3 Pizza and 1 Pepsi as you are with 3 Pepsi and 2 pizza or 6 Pepsi and 1 pizza. So your indifference curve will pass through the points on graphs that represent these three combinations. Please also keep in mind the graph will pass through all the combinations of Pizza and Pepsi that give you equal satisfaction. Most of the Indifference curves are convex in shape as the one we show in this blog. However, there are cases in which indifference curves take a lot of different shapes which we are not discussing here.