A priority encoder differs from an ordinary encoder in one crucial way: it is designed to handle the situation where more than one input is active at the same time. Instead of producing an invalid output, it applies a fixed priority ranking and encodes only the highest-priority active input, ignoring all lower ones.

In a 4-to-2 priority encoder with inputs D0, D1, D2, D3, the convention is that the higher-numbered input has higher priority:

• D3 (priority 3) > D2 (priority 2) > D1 (priority 1) > D0 (priority 0)

With D1 = 1 and D3 = 1 simultaneously, the encoder compares their priorities. D3 outranks D1, so D3 determines the output, and the 2-bit output is the binary code for 3, i.e. 11.

This is exactly why the output is not undefined for multiple active inputs — resolving that ambiguity is the entire purpose of a priority encoder. The idea that both D1 and D3 set the output together is impossible, because the two-bit output can represent only one input number at a time. And D1 determining the output because it is the lower number reverses the rule: it is the higher-numbered, higher-priority input D3, not the lower one, that wins.