What are the critics of indifference curve?
Indifference curve analysis is criticized on the ground that it cannot explain consumer behaviour when he has to choose among alternatives involving risk or uncertainty of expectation. To make a choice among uncertain alternatives quantitative measurement of utility is needed to decide whether the risk is worth taking.
What is indifference curve approach?
An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby making the consumer indifferent. Along the curve, the consumer has an equal preference for the combinations of goods shown—i.e. is indifferent about any combination of goods on the curve.
What are the properties of indifference curve approach?
The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.
What are the assumptions of indifference curve approach?
Assumptions of Indifference Curve Analysis: (1) The consumer acts rationally so as to maximise satisfaction. (2) There are two goods X and Y. (3) The consumer possesses complete information about the prices of the goods in the market.
What are the limitation of law of marginal diminishing?
Limitations of the law of DMU are: It is assumed that the tastes, habits, fashion, and income remains constant. But this is not true realistically. Income of the consumer is assumed is constant which doesn’t happen and thus he shifts to another good but this is not taken into consideration.
Which is not the assumption of indifference curve analysis?
Constant marginal utility of money is not an assumption of indifference curve analysis. It’s an assumption of law of diminishing marginal utility.
Who introduced indifference curve approach?
economist Francis Y. Edgeworth
Developed by the Irish-born British economist Francis Y. Edgeworth, it is widely used as an analytical tool in the study of consumer behaviour, particularly as related to consumer demand.
Why indifference curve is ordinal approach?
1) Indifference curve analysis adopts ordinal measure of utility in a more realistic way. 2) Indifference curve analysis uses the concept of marginal rate of substitution that is measurable. Moreover, in indifference curve analysis, demand can be analyzed without assuming constant marginal utility of money.
Which one is not property of indifference curves?
‘Indifference curves of imperfect substitutes are concave to the origin’ is not the basic property of indifference curves.
What is indifference curve write any two properties of indifference curve?
Answer. Answer: There are four important properties of indifference curves that describe most of them: (1) They are downward sloping, (2) higher indifference curves are preferred to lower ones, (3) they cannot intersect, and (4) indifference curves are convex (i.e. bowed inward).
Why indifference curve Cannot be upward sloping?
A set of indifference curves can be upward sloping if we violate assumption number three; more is preferred to less. When a set of indifference curves is upward sloping, it means one of the goods is a “bad” so that the consumer prefers less of that good rather than more.
What are the limitations of the law of diminishing returns?
The following are the limitations of the law of diminishing returns: This law, although considered to be useful in production activities, cannot be applied universally in all production scenarios. It becomes a constraint in cases where products are less natural. This law is most significant in agricultural production.
What are the limitations of marginal utility theory?
The theory states that marginal utility of money is constant. However, this is not the case in the real world. When money in your hand increases, the marginal utility derived from it decreases because of abundance.
What are the three basic assumptions of indifference approach?
The indifference approach is based on three basic assumptions: the assumption of completeness (or law of comparison), the assumption of consistency (or transi tivity) and the assumption of non-satiation (or non-satiety).
Which is not true in case of an indifference curve?
C. Indifference curves are not straight lines because the marginal rate of substitution falls.
What is the other name of indifference curve?
The diagram shows an Indifference curve (IC). Any combination lying on this curve gives the same level of consumer satisfaction. Another name for it is Iso-Utility Curve.
What are the limitations of law of marginal diminishing?
Is indifference curve a cardinal approach?
ADVERTISEMENTS: Indifference curve method has been evolved to supersede the cardinal utility analysis of demand. The indifference curve method seeks to derive all rules and laws about consumer’s demand that are derivable from the cardinal utility analysis.
What are some of the limitations of indifference curve analysis?
Many other economists such as F.H. Knight, Armstrong, Boulding criticised the analysis in several ways. Some of the limitations of this analysis are: (i) The indifference curve analysis is utility analysis in a new grab. It has simply substituted new concepts and equations instead of the old ones.
Why does the indifference curve analysis become unrealistic?
Since the indifference hypothesis is based on unwarranted assumptions, it becomes unrealistic. The indifference curve analysis becomes ridiculous when it is assumed that goods are divisible in small units. Commodities like watches, cars, radios, etc. are indivisible. To have 3½ watches or 2½ cars or 1½ radios in any combination is unrealistic.
Are indifference curves imaginary?
(viii) Indifference curve analysis is not amenable to statistical investigation and empirical research, as the entire analysis is based upon theoretically formulated cross-effect relationships and not upon statistical observations. In view of Samuelsson, indifference curves are imaginary.
What is the importance of indifference curve in rationing?
Therefore ‘Contract curves’ helped explain the process of shifting to a higher level of satisfaction. 3) Field of Rationing: The indifference curve technique is also useful in the field of rationing. Usually, there is a rationing of two commodities to different individuals without their preferences.