Indifference Curve Approach

Indifference Curve Approach:

Marshall’s demand analysis depends on the cardinal measurement of utility. The approach is criticized for two main reasons:

(i) Utility is a psychological occurrence and
(ii) It can’t be measured.
 
Therefore, the indifference curve approach depend on ordinal ranking preference was evolved. Vilfred Pareto, Wicksteed & Slutsky developed this approach. Two noted English economists Professor J.R. Hicks and Professor Allen offered a refined version of indifference curve approach. According to Hicks and Allen, utility can’t be measured. It can only be ordered or ranked. The consumer can rank his preference without difficulty and state which is enhanced than the other.

The concept of scale of preference has been elucidated by indifference curve. The indifference curve exhibits various combinations of two commodities that provide the consumer an equivalent satisfaction.

Definition:

An indifference curve is the locus of various combinations of two commodities providing the similar level of satisfaction.

Assumptions of indifference curve analysis:

1. The consumer is rational. Therefore, he prefers more goods to fewer goods.
2. He bought two goods, X & Y only.
3. The price which a consumer pays for a commodity points out the level of utility derived by him.
4. His income stays constant.
5. His preferences, tastes, habits stay unchanged.

 

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