Consumer preference plays a crucial role in shaping the economy. It forms the basis of production activities as the consumer’s preferences influence the producer’s opportunity function. The producer in order to maximize his profit , always want to know the preferences of the consumer , as the consumer preferences affect the demand, so that he can always focus on the particular product , which the consumer prefers. The Government policies are also influenced by the preferences. Therefore, it is crucial to determine consumer preferences. In order to know about consumer preferences, some methods and theories are required.
Some of the theories introduced were:
* Utility theory: Utility has been described as the measurement of the satisfaction that an individual get, by consuming a combination of goods. The utility associated with each combination, allows ranking the combinations in a specific order. Assuming the consumers to be insatiable, the consumer will prefer the higher ranked combination to other combinations with lower utility. The utility concept is divided into two kinds of utilities, ordinal utility which provides us with the ranking of combinations of goods and cardinal utility , which measures the difference in amount of satisfaction , consumer gets by giving preference to one combination of goods over another . Assuming the consumers to be insatiable, the consumer will prefer the higher ranked combination to other combinations with lower utility. The cardinal measurability of utility has been criticized, as on the terms that in reality utility or satisfaction cannot be measured cardinally, the satisfaction obtained from one combination of productions can only be compared to the satisfaction obtained by consuming another combination of products.
* The indifference curve approach, was then introduced which is based on preference hypothesis , that is if the consumer is provided with various combination of goods, he can put them or... [continues]
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