Preference and the Consumer's Spending Decision

Now, let's see how John's preferences influence his spending. We'll need to keep using Table 7 so here it is again:

Table 7

Suppose that John has $1.35 to spend for his lunch. John can afford 2 wings and 15 fries or 1 wing and 30 fries (or one wing and 5 fries or one wing and no fries or no wings and 15 fries). These alternatives rank third and second, so John's "rational" choice is 1 wing and 30 fries. This is the choice that John most prefers, within his budget. By choosing it, we might say, John is "maximizing his preference." That's an awkward phrase, but it will have to do: in the preference approach, we say that a rational consumer maximizes her or his preferences within the limit of her or his budget.

It's almost as simple as that. But, of course, there are some important details to keep in mind -- because they help to bridge the gap between the preference approach and the marginal benefits approach.

Preference is Relative