Managerial Economics and Strategy, 2/e

4.1 Consumer Preferences

I have forced myself to contradict myself in order to avoid conforming to my own taste.

—Marcel Duchamp, Dada artist

We start our analysis of consumer behavior by examining consumer preferences. Once we know about consumers’ preferences, we will combine that knowledge with information about the constraints consumers face to answer many questions of interest, such as the managerial problem posed at the beginning of this chapter.

A consumer faces choices involving many goods. Would ice cream or cake make a better dessert? Is it better to rent a large apartment or rent a single room and use the savings to pay for trips and concerts? In short, a consumer must allocate his or her available budget to buy a bundle (also called ...