Consumer Preferences

What Consumers Want

Microeconomics begins with the consumer, and the consumer begins with preferences.

Three axioms of rational preference:

1. Completeness: Any two bundles can be ranked; you cannot say "I can't compare them."
2. Transitivity: If $A \succsim B$ and $B \succsim C$, then $A \succsim C$. This rules out preference cycles.
3. Non-satiation ("more is better"): A bundle with more of at least one good is strictly preferred, ruling out bliss points.

Indifference curves connect all bundles the consumer considers equally good.

Curves and Trade-offs

Indifference curves slope downward from non-satiation, never cross due to transitivity, and higher curves are preferred.

The marginal rate of substitution (MRS) is the rate of trade:

$$MRS = -\frac{\Delta y}{\Delta x} = \frac{MU_x}{MU_y}$$

The MRS typically diminishes: the more $x$ you have, the less $y$ you will trade for it, creating convex curves bowed to the origin.

Special cases include perfect substitutes (straight lines, constant MRS), perfect complements (L-shaped, fixed proportions), and Cobb-Douglas (smooth, convex).

Tip: Each curve property is an axiom made visible. If a drawn map violates one, an axiom is broken.