4.2
Consumer preferences
rational consumers Before analysing consumer behaviour we must make certain basic assumptions regard-
are assumed to be
acting rationally by choosing those goods and services that yield maximum satisfaction
goods a physical commodity or service that the individual would prefer more of rather than less. Goods therefore yield positive
satisfaction or utility to the consumer
bads a physical commodity or service that an individual would prefer less of rather than more. Consuming a bad therefore yields negative
satisfaction or utility
negative utility obtained when by consuming a good the individual’s satisfaction or
ing the nature of consumer decision making. These assumptions will form the basis of our analysis and include the following:
4.2.1 Rationality
Consumers are assumed rational in the sense that they seek maximum satisfaction (or
utility) from the goods and services they purchase with their fixed income.
This assumption appears reasonable, although we can imagine instances where con- sumers appear to act irrationally. This might be the case where we later regret purchasing an article of clothing, or having remained drinking at the bar instead of returning home to finish an essay. Nevertheless, it is reasonable to assume that con- sumers usually act rationally in their pursuit of maximum utility.
We should always be careful of labelling individual actions as irrational. If a consumer freely chooses a good without coercion, the act of choice reveals preference. For exam- ple, where items A and B are the same price and A is chosen over B, then A is assumed to be preferred to B and yields greater utility. (A different consumer might choose B over A.) It is also possible for a consumer to be indifferent between A and B. In this case we must assume that A and B provide the consumer with the same utility.