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Preferences and Utility Functions
Discover how economists model human happiness and turn abstract preferences into the demand curves that drive everyday market pricing.
Jonathan Gruber introduces the foundational microeconomic models of consumer choice by exploring preferences and utility functions. The lecture establishes core preference assumptions including completeness, transitivity, and non-satiation, and translates them into graphical indifference curves and mathematical utility functions. It concludes by demonstrating how diminishing marginal utility and the marginal rate of substitution explain real-world pricing strategies.
Referenced inMIT OpenCourseWare · MIT 14.01 (Fall 2018)
Lecture Guide
- 1Consumer choice is modeled through utility maximization, combining preferences and a budget constraint.
- 2Preferences rely on three core assumptions: completeness, transitivity, and non-satiation (more is better).
- 3Indifference curves represent all consumption bundles that yield the same level of utility and possess four key properties.
- 4Utility functions mathematically represent preferences and allow economists to rank choices using an ordinal scale.
Proofs, Examples & Demos
Assumed Background