Why does the indifference curve approach is better than marginal utility approach explain?

The indifference curve technique is definitely superior to the utility analysis because it discusses the income effect when the consumer’s income changes; the price effect when the price of a particular good changes and its dual effect in the form of the income and substitution effects.

What is the relationship between utility and indifference curve?

The indifference curve is just a curve connecting points with the same utility level (same value of u(x1,x2)) but for any such value we get a different IC while the utility function is kept the same.

What is meant by consumers equilibrium explain with utility analysis approach and indifference curve approach what are the properties of indifference curve?

Consumer equilibrium refers to a situation, in which a consumer derives maximum satisfaction, with no intention to change it and subject to given prices and his given income. So, a consumer always tries to remain at the highest possible indifference curve, subject to his budget constraint.

What are the indifference curve approach?

The indifference curve method seeks to derive all rules and laws about consumer’s demand that are derivable from the cardinal utility analysis. For example, the prices of goods, the markets in which they are available the satisfaction to be obtained from them etc., are all known to the consumer.

What is the relationship between utility and marginal utility?

Total utility is the sum of all utilities derived by a consumer form all units of commodity consumed by him. Whereas Marginal utility is the addition to the total utility derived by consuming an extra or additional unit of a commodity.

Which of the utility approach is more realistic and why?

Ordinal utility depends on qualitative measurement, which makes it more realistic.

What do you understand by the term consumer’s equilibrium ‘? Explain with illustration the consumer’s equilibrium in terms of ordinal utility theory?

The state at which a consumer derives maximum utility from the consumption of one or more goods and services given his/her level of income is called consumer’s equilibrium. At that level of balance between total utility and income, the marginal utility of a product is equal to its one unit price.

How is the consumer equilibrium arrived at using the utility approach?

The consumer equilibrium is found by comparing the marginal utility per dollar spent (the ratio of the marginal utility to the price of a good) for goods 1 and 2, subject to the constraint that the consumer does not exceed her budget of $5.

What is ISO utility curve?

An isoquant curve is a concave line plotted on a graph, showing all of the various combinations of two inputs that result in the same amount of output. Most typically, an isoquant shows combinations of capital and labor and the technological trade-off between the two.

What is ordinal utility approach?

In economics, an ordinal utility function is a function representing the preferences of an agent on an ordinal scale. Ordinal utility theory claims that it is only meaningful to ask which option is better than the other, but it is meaningless to ask how much better it is or how good it is.

What is the relationship between total utility and marginal utility explain with the help of a diagram?

(i) Total utility increases with an increase in consumption as long as MU is positive. (ii) When TU reaches its maximum, MU becomes zero. This is known as point of satiety. (iii) When consumption is increased beyond the point of satiety, TU starts falling as MU become negative.

What is the relationship between marginal utility and indifference curve?

As a consumer moves along an indifference curve his consumption of one good, say Y, decreases, while that of another good, say X, rises. When the consumer sacrifices Y, his marginal utility for Y becomes -∆Y × MU of Y. But as consumption of X increases his MU for X becomes ∆X × MU of X.

When does a consumer reach equilibrium in indifference curve analysis?

In the indifference curve analysis, a consumer reaches equilibrium when the slope of the indifference curve, MRS XY, is equal to the slope of the budget line, P X /P Y. Symbolically, It is worth noting here that there is a relationship between marginal rate of substitution (MRS) and marginal utility (MU).

What is the difference between indifference analysis and utility approach?

Utility approach is labeled as “introspective cardinalisim” while indifference analysis is labeled as “introspective ordinalism”. Utility analysis is based on introspection. Like the utility analysis, indifference approach is also rooted in the introspectively derived ordinal utility functions of the consumers.

What is indindifference curve analysis (ordinal approach)?

Indifference curve analysis (Ordinal approach) This approach was propounded by Allen and Hicks. According to them, the utility cannot be measured in monetary terms. The consumer feels no difference between the various combination of commodities as long as consumer satisfaction remains the same.