Question

1. A basic assumption about consumers in microeconomics is that they have preferences over different baskets of goods. Explain the concepts “preference”, “preference order”, and “basket of goods”.

Answer 1

Preference affects consumer demand for goods. It is defined as some characteristics a consumer wants in a given commodity that’s preferable to him/her, such as satisfaction of the product.

Preference order refers to the alternatives or an array of options over the basket of goods. For example, for a given list of two products, there are chances the consumer prefers the first item over the second and vice versa.

A basket of goods refers to general goods produced continuously in an economy. For example, a mixture of a pack of cereals, dozens of tissue rolls is a basket of goods.