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Explain what it means for a consumer's preferences to be represented by a utility function u(x1,x2)

Explain what it means for a consumer's preferences to be represented by a utility function u(x1,x2)

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When we say that a consumer's preferences are represented by a utility function u(x1, x2), what we are trying to achieve is to put a numerical value to the total utility the consumer gets from a given bundle of two goods. This can then be used to compare the two bundles by a consumer and select the one which makes him better off. We say that a consumer prefers the bundle 1 to bundle 2, only when U1(x1, x2) > U2(x1, x2).

This preference order generated by the use of utility functions is the basis over which most of the economic theory of consumer behaviour is developed. If we can not quantify utility through a function, no infrences can be made about consumer behaviour.

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