Utility function

A utility function assigns a number to each possible consumption bundle so that higher numbers represent bundles the consumer prefers. Its values encode rankings, not necessarily measurable happiness.

Consumer preference: A ranking of consumption bundles according to how desirable they are to a consumer. A utility function represents this underlying ranking numerically.
Utility maximization: The choice of a feasible option that has the highest value under an objective function. Consumers are modeled as choosing the affordable bundle with greatest utility.
Ordinal utility: A numerical representation whose values matter only through the preference ranking they encode. Ordinary consumer utility functions are interpreted this way.
Marshallian demand: A consumer's chosen quantities as functions of prices and income. It results from maximizing utility subject to a budget constraint.
Preference relation: A relation that specifies whether one option is at least as preferred as another. It gives the pairwise comparisons that a utility representation must preserve.
Marginal utility: The change in utility associated with a small increase in consumption of a good. Its rate of change helps characterize trade-offs between goods.
Cardinal utility: A utility representation in which differences or ratios of values have substantive meaning. It imposes more interpretation on numbers than ordinal preference representation requires.
Hicksian demand: The least-cost bundle that achieves a specified utility level at given prices. It holds utility fixed while measuring the cost of attaining a preference level.
Indifference curve: A curve connecting consumption bundles that provide the same level of utility. Each curve groups bundles assigned equal utility.
Marginal rate of substitution: The amount of one good a consumer would trade for another while maintaining the same utility. It is the local slope of an indifference curve derived from utility.

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