Concept of preference - utility function, Macroeconomics

Concept of Preference, Utility Function:

Concept of Preference, Utility Function and Indifference Curve  Consumer preference ('R') specified by the above axioms can be represented by a function where total utility ('U') depends on quantity consumption (x1, x2), which satisfied all other axioms. The function U = U(x1, x2) is known as  

utility function. Since consumer is rational, her objective is to maximise the utility specified by the utility function U = U(x1, x2) subject to her budget constraint. To solve the consumer utility Maximisation problem, we use a graphical tool, which is known as Indifference curve. Meaning and definition of indifference curve: Different combination of goods x1 and x2 along which consumer is indifferent (or consumer has same level of utility) give a curve in commodity-commodity plane known as indifference curve. Therefore, along the indifference curve utility or satisfaction remains unchanged. Existence of indifference curve: Because of axiom of reflexiveness consumer can choose a commodity bundle over another commodity bundle i.e., consumer may be indifferent between any commodity bundle and such a choice might be continuous. So, indifference curve may exits anywhere in the commodity space.  

Posted Date: 10/26/2012 2:38:39 AM | Location : United States

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