The study of demand in economics involves how consumers select goods and services. According to James C. Cox in The Economic Journal, consumer economics traditionally operates on the hypothesis that consumers seek the most utility, or satisfaction, that they can buy. Consumer preferences involve the ranking of goods and services according to how much benefit they afford. The study of consumer preferences employs assumptions about consumers' behavior and how they decide preferences.
Elements of Definition
A consumer preference explains how a consumer ranks a collection of goods or services or prefers one collection over another. This definition assumes that consumers rank goods or services by the amount of satisfaction, or utility, afforded. Consumer preference theory does not take the consumer's income, good or service's price, or the consumer's ability to purchase the product or service.
A consumer preference assumes that the consumer can choose consistently between or among goods and services. The consumer must prefer one set of goods or services over others or treat all as equally beneficial. Consistency is an issue when the consumer must consider more than two alternatives. If a consumer ranks dress shoes ahead of tennis shoes and tennis shoes ahead of sandals, the consumer must prefer dress shoes to sandals.
Consumer preference theory assumes that "more is better." This form of preference, monotonicity, has varying levels of strength. Basic monotonicity means that a consumer, if deciding between two laptops with the same amount of memory, will choose the one with the larger screen. The consumer will have a stronger preference for a laptop with both more memory and the larger screen.
Diminishing Marginal Utility
Diminishing marginal utility means that more is better to a certain point. According to this assumption, a consumer gets less additional satisfaction the more a product or service is consumed. At some point, a consumer will get no additional utility from the product or service.