Business Courses / Course / Chapter

What are Concepts and Assumptions of Consumer Preference?

Katherine Williams, Jennifer Lombardo
  • Author
    Katherine Williams

    Katherine Williams has an Mth in Theological Ethics and Philosophy from The University of Aberdeen and a BA in Theatre Arts from Oral Roberts University. Katherine has 10+ years of experience teaching literacy, essay composition, philosophy, and world languages. Katherine is also a TEFL-Certified ESL teacher. She has 3 years of experience teaching and developing curriculum for ESL students.

  • Instructor
    Jennifer Lombardo

    Jennifer Lombardo received both her undergraduate degree and MBA in marketing from Rowan University. She spent ten years in consumer marketing for companies such as Nielsen Marketing Research, The Dial Corporation and Mattel Toys. She is currently an adjunct professor of marketing at Rowan University and a social media marketing consultant.

Learn about consumer preferences in economics and understand the importance of the consumer choice theory - study examples of consumer preference assumptions. Updated: 01/19/2022

Table of Contents

Show
Frequently Asked Questions

Why is customer preference important?

Many companies have recognized the importance of customer preference theory in recent years. They have started using customer data to improve their products and services. For example, Amazon uses customer data to make sure its customers are happy with their purchases.

Customer preferences can be used in many ways, such as:

- understanding what customers want from a product or service;

- creating new products or services based on what customers want;

- improving the quality of existing products or services.

How do you determine consumer preferences?

Consumer preference theory is a theory that explains how consumers make decisions. It is based on the idea that consumers are rational and will choose the product or service they believe will satisfy their needs.

The theory has been used in marketing for decades to help companies understand what products and services consumers prefer. It can also be used to determine whether a product or service is worth an investment.

There are many different ways to determine consumer preferences, such as surveys, interviews, focus groups, and ethnographic research.

What is Consumer Preference?

Consumer preference is a term that refers to consumers' choices to maximize their satisfaction. Consumers have some degree of control over the type of goods they buy, but they cannot always choose what they want.

Consumer preference is a theory that has been around for decades. It has been used to explain the behavior of consumers. Consumer preference can be applied in many different ways, such as marketing, advertising, product design, etc.

The theory states that consumers are influenced by their own preferences, the preferences of others, and the context in which they make decisions. Consumers are also influenced by social norms and cultural values, which can be seen as social pressure to conform to certain behaviors or beliefs.


Consumers have preferences for products that work well with their lifestyle. The more convenience and flexibility a product offers, the more likely consumers will prefer it over different alternatives.
consumer choice theory, consumer choice model, transitivity economics, preferences in economics


In economics, consumer preference is a concept that refers to the choices consumers make to maximize their satisfaction. Consumers have some degree of control over the type of goods they buy, but they cannot always choose what they want.

Consumer preference is a key factor in the economy. It is one of the most important factors influencing demand, supply, and price.

A basic example would be if a customer were at a restaurant and had two options for entrees - chicken and steak. Which one would the consumer choose? They will likely choose the one they like more or have more reason to buy.

To unlock this lesson you must be a Study.com Member.
Create your account

Consumer Preference

Eddie prefers to buy upscale, expensive Norvel brand clothing, while Jack loves to purchase low-cost clothing brand Nickel and Dime. Why do consumers prefer different products and services? In this lesson, you will learn the definition of consumer preferences and how they influence consumer choice.

Consumer preference is defined as a set of assumptions that focus on consumer choices that result in different alternatives such as happiness, satisfaction, or utility. The entire consumer preference process results in an optimal choice. Consumer preferences allow a consumer to rank different bundles of goods according to levels of utility, or the total satisfaction of consuming a good or service.

It is important to understand that consumer preferences are not dependent upon consumer income or prices. So a consumer's capacity to buy goods does not reflect a consumer's likes or dislikes. For example, Eddie can have a consumer preference for Rolex watches over Timex but only have the financial income to purchase a Timex.

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Consumer Theories in Economics: Decision Making, Incentives & Preferences

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:23 Consumer Preference
  • 1:12 Consumer Preference…
  • 2:48 Economic Importance of…
Save Timeline
Autoplay
Autoplay
Speed
Speed

Consumer Preference Assumptions

Assumptions are fundamental to the way people think about and make decisions. Assumptions are the mental shortcuts that people use to make said decisions. They can help a person understand the world and make sense of it, but they also have limitations.

There are three types of assumptions: completeness, transitivity, and non-satiation.

  • Completeness: Completeness assumes that consumers have all the information they need to make an informed decision, both about the product and their own desires.
  • Transitivity: Transitivity assumes that if A happens then, B will happen as well.
  • Non-Satiation: Non-satiation assumes that if one person has X amount of something, it does not mean they will not want more options.

In the world of marketing, assumptions are made all the time. For example, when a company wants to create a new product or service, they might assume that consumers will like it without testing it first. This assumption is an example of a completeness assumption - if something is assumed, then that means it has already been done somehow.

Transitivity assumptions are when people assume that if one thing is true, then another thing must be true as well. For example, if someone thinks that their favorite sports team will win, they might assume their favorite team will win the championship or vice versa.

The assumption type, non-satiation, assumes that consumers want to choose from dozens of options. For example: if a consumer comes into the store looking for a specific brand of bread out of stock, they want to have other bread brands from which to choose.

Completeness

The completeness assumption states that consumers are rational and make decisions based on all the information they have. This assumption is made because consumers control their own preferences and are not influenced by external factors.

There is a lot of evidence that this assumption does not hold true. Consumers often make decisions based on incomplete information, which means that they may be making decisions for irrational reasons.

One important factor to always remember is that the consumer is not indifferent, which means that consumers want to buy what they want when they want it and from the place where they want it. The consumer wants to feel confident that everything is in their control. They want to know that the product will be delivered on time and that the quality is good enough for them. However, the consumer may not know what product or service will make them feel or experience what they want to

To unlock this lesson you must be a Study.com Member.
Create your account

What is the consumer choice model? Choice theory is a branch of microeconomics that deals with consumers' decision-making process. It is based on the assumption that individuals maximize their utility and are willing to pay a specific price for a product or service if they perceive it as better than an alternative.

Consumer choice theory can help one understand how demand curves work, which is the relationship between the quantity demand for the goods at various prices. This theory also helps one understand how consumer taste changes over time, often referred to as consumer preference or taste curve.

To unlock this lesson you must be a Study.com Member.
Create your account

Consumer preference theory is a theory that states that consumers have preferences for certain products and services. Consumer preference theory is a valuable tool for marketers to understand what consumers want and how they react to different marketing strategies. It helps them create effective marketing campaigns based on consumer needs and wants. Utility is a consumer's satisfaction from consuming a good or service. It can be defined as the amount of happiness, pleasure, or contentment that an individual derives from consuming a good or service.

The assumption of completeness is that consumers will always want more of a good or service. The assumption of transitivity is that if one person likes something, then everyone else will like it as well. The assumption of non-satiation is that consumers won't stop liking a product or service once they have it - or have options for many like it.

To unlock this lesson you must be a Study.com Member.
Create your account

Consumer Preference Assumptions

Let's further examine the idea of consumer preference through the three basic assumptions. The first assumption is called completeness, which is when the consumer does not have indifference between two goods. If faced with apples versus oranges, every consumer does have a preference for one good over the other. For example, Eddie has two alternative choices: steak or chicken. The assumption of completeness reflects the idea that Eddie should be able to compare his options, in this case steak and chicken. In other words, Eddie should be able to say whether he likes steak or chicken better.

The second assumption is called transitivity, which is based on defining a relationship between goods, such as if a consumer prefers good A to good B, and prefers good B to good C, then the consumer should prefer good A to good C. Let's use Eddie's food selections as another example. If Eddie prefers steak (good A) to chicken (good B), and prefers chicken (good B) to turkey (good C), then Eddie should prefer steak (good A) to turkey (good C).

The last consumer assumption is based on non-satiation, which states that more of a good is always better as long as it does not affect the consumer's ability to utilize all other goods. Eddie will be happier with 6 steaks and 2 chickens, than 4 steaks and 1 chicken. Eddie has no point of satiation or the ability to be satisfied. Some economists call this assumption consumer greed.

Economic Importance of Consumer Choice

Consumer preference is critical to economics because of the relationships between preferences and consumer demand curves. It is important to understand what Eddie and other consumers prefer to spend their income on which will help predict consumer demand. The purpose in understanding the consumer choice theory is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility or satisfaction in terms of their consumer budget limits.

Video Transcript

Consumer Preference

Eddie prefers to buy upscale, expensive Norvel brand clothing, while Jack loves to purchase low-cost clothing brand Nickel and Dime. Why do consumers prefer different products and services? In this lesson, you will learn the definition of consumer preferences and how they influence consumer choice.

Consumer preference is defined as a set of assumptions that focus on consumer choices that result in different alternatives such as happiness, satisfaction, or utility. The entire consumer preference process results in an optimal choice. Consumer preferences allow a consumer to rank different bundles of goods according to levels of utility, or the total satisfaction of consuming a good or service.

It is important to understand that consumer preferences are not dependent upon consumer income or prices. So a consumer's capacity to buy goods does not reflect a consumer's likes or dislikes. For example, Eddie can have a consumer preference for Rolex watches over Timex but only have the financial income to purchase a Timex.

Consumer Preference Assumptions

Let's further examine the idea of consumer preference through the three basic assumptions. The first assumption is called completeness, which is when the consumer does not have indifference between two goods. If faced with apples versus oranges, every consumer does have a preference for one good over the other. For example, Eddie has two alternative choices: steak or chicken. The assumption of completeness reflects the idea that Eddie should be able to compare his options, in this case steak and chicken. In other words, Eddie should be able to say whether he likes steak or chicken better.

The second assumption is called transitivity, which is based on defining a relationship between goods, such as if a consumer prefers good A to good B, and prefers good B to good C, then the consumer should prefer good A to good C. Let's use Eddie's food selections as another example. If Eddie prefers steak (good A) to chicken (good B), and prefers chicken (good B) to turkey (good C), then Eddie should prefer steak (good A) to turkey (good C).

The last consumer assumption is based on non-satiation, which states that more of a good is always better as long as it does not affect the consumer's ability to utilize all other goods. Eddie will be happier with 6 steaks and 2 chickens, than 4 steaks and 1 chicken. Eddie has no point of satiation or the ability to be satisfied. Some economists call this assumption consumer greed.

Economic Importance of Consumer Choice

Consumer preference is critical to economics because of the relationships between preferences and consumer demand curves. It is important to understand what Eddie and other consumers prefer to spend their income on which will help predict consumer demand. The purpose in understanding the consumer choice theory is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility or satisfaction in terms of their consumer budget limits.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Resources created by teachers for teachers

Over 30,000 video lessons & teaching resources‐all in one place.
Video lessons
Quizzes & Worksheets
Classroom Integration
Lesson Plans

I would definitely recommend Study.com to my colleagues. It’s like a teacher waved a magic wand and did the work for me. I feel like it’s a lifeline.

Jennifer B.
Teacher
Jennifer B.
Try it now
Create an account to start this course today
Used by over 30 million students worldwide
Create an account

Explore our library of over 88,000 lessons

Browse by subject