Consumption Bundles, Utility, and Possible Sets

By Lynne Pepall, Peter Antonioni, Manzur Rashid

One way to think about consumption bundles and preferences on microeconomics is to think about all the possible choices. If you describe the set of possible choices in a diagram, you can see pretty easily which choices the consumer would prefer.

For instance, this figure draws an indifference curve for all the consumption bundles for which Bob gets the same amount of utility. Two equivalent bundles, A and B, are marked. The shaded area shows the set of all possible points yielding higher utility than bundles A and B.

Bob's preferred consumption bundle: Bundle C yields higher utility than A and B and would therefore

Bob’s preferred consumption bundle: Bundle C yields higher utility than A and B and would therefore be Bob’s preferred consumption.

He’s now offered a bundle that offers more utility than these two — call it bundle C — and you translate this into microeconomist speak as follows:

C > B, C > A

This expression confirms that C is strictly preferred to B and A. In the figure, you can picture C as being a member of the set of points that are strictly preferred to A and B, and the area covered by that set is shaded. That relationship is strict preference, it can’t include the indifference curve itself, because that would mean Bob gets at least as much utility from something we’ve already said yields more utility.