INTRODUCTION: - The consumers demand a commodity because they derive or expect to derive utility from that commodity. The expected utility from a commodity is the basis of demand for it. Though ‘utility’ is a term of common usage, it has a specific meaning and use in the analysis of consumer demand.

THE MEANING OF UTILITY: - The concept of utility can be looked upon from two angles. First from the commodity angle, utility is the want-satisfying property of a commodity. Second from the consumer’s angle, utility is the psychological feeling of satisfaction, pleasure, happiness or well being which a consumer derives from the consumption, possession or the use of a commodity.

MEASURABILITY OF UTILITY: - Measurability of utility has been and remains a debatable issue. Essentially utility is a psychological phenomenon- it is a feeling of pleasure or a feeling of satisfaction and achievement/ can utility be measured in Quantitative or numeral terms? As mentioned above, the early and the modern economists have different answers to this question.

The classical and neo-classical2 economists held the view that utility’s quantitatively or cardinally measurable. It can be measured like height, weight, length and temperature. Their method of measuring utility can be described as follows:

Walrus, a classical economist, used the term ‘util’ meaning ‘units of utility’. The term was used as an accounting unit like kilogram, meter, etc.

The classical economists used ‘util’ as the measure of utility under the assumption that one unit of money equals one ‘util. It implies that p-rice that a consumer pays for a commodity equals the utility derived from the commodity.

They assumed that marginal utility of money remains constant, i.e. the utility one derives from each successive unit of money income remains constant whatever the stock of money one holds.

Total and Marginal Utility: -

TOTAL UTILITY: - The concept of cardinal utility makes it possible to define the Total and Marginal Utility in quantitative terms. The total utility (TU), with reference to a single commodity, may be defined as the sum of the utility derived from all the units consumed of the commodity. For example, it a consumer consumes 4 units of a commodity and derives U1, U2, and U3 band U4 utils from the successive units consumed, then

TU=U1+U2+U3+U4If he consumes n units the total utility (TU) from n units can be expressed as

TUn =U1+U2 +U3+...+UN

In case the number of commodities consumed and their units are greater than one, then

TU =TUX + TUy +TUz +...+TUnWhere subscripts; x, y, z and n denote commodities.

MARGINAL UTILITY: - One, marginal utility is the utility derived from the marginal or the last unit consumed.

Two, marginal utility ism the addition to the total utility- the utility derived from the consumption or acquisition of one additional unit, Or, Marginal Utility (MU) is the change in the total utility resulting from the change in the consumption.

Thus, MU + ATUAQ

Where ATU = change in total utility, and AQ = change in quantity consumed of a commodity.

Three, marginal utility (MU) may also be expressed as

MU =TUn – Tun-1

CONSUMER BEHAVIOUR: -The theory of consumer behavior is based on the assumption that the consumer is a rational human being. Given his income and the market prices of the various commodities, he plans that spending of his income so as to attain the highest possible satisfaction or utility. This is the axiom of utility maximization.

In order to attain this objective the consumer must be able to compare the utility of the various goods, which he can buy with his given income. There are two basic approaches to the problem of comparison of utilities, n hence to the determination of consumer’s equilibrium. These are:

Cardinal approach Ordinal approach

CARDINAL UTILITY THEORY: -Consumer equilibrium is a situation in which a consumer has allocated his given income on different available commodities in such a manner that he gets the highest possible utility. He will not like to change from his situation.

Cardinal approach to the determination of consumer equilibrium postulates that utility can be measured. The utility can be measured by the monetary units (i.e. the amount of money) that the consumer is prepared to pay for another unit of the commodity.

.

THE LAW OF DIMINISHING MARGINAL UTILITY: -The law of diminishing marginal utility is central to the cardinal utility analysis of the consumer behavior. This law states that as the quantity consumed of a commodity increases per unit of time, the utility derived by the consumer from the successive units goes on decreasing, provided the consumption of all other goods remains constant. This law stems from the facts

That the utility derived from a commodity depends on the intensity or urgency of the need for that commodity, and

That as more and more quantity of a commodity is consumed, the intensity of desire decreases and therefore the utility derived from the marginal unit decreases.

For example, suppose you are very hungry and are offered burgers to eat. The satisfaction, which you derive from the first piece of burger, would be the maximum because intensity of your hunger goes on decreasing and therefore the satisfaction that you derive from the successive units goes on decreasing. This phenomenon is generalized in the form of a theory call the Law of Diminishing Marginal Utility.

Assumptions:

The law of diminishing marginal utility holds only under certain given conditions. These conditions are often referred to as the assumptions of the law.

First, the unit of the consumer goods must be standard, e.g. a cup of tea, a bottle of cold drinks, a pair of shoes or trousers. If the units are excessively small or large, the law may not hold.

Second, consumer’s taste or preference must remain unchanged during the period of consumption.

Third, there must be continuity in consumption and where break in continuity is necessary, it must be appropriately short.

Fourth, the mental condition of the consumer must remain normal during the period of consumption of a commodity, if a person is eating and also drinking (alcohols) the utility pattern will not be certain.

Total and Marginal UtilityBurgers Total Utility (TU) Marginal Utility

0 0 0 – 0 = 01 30 30 – 0 = 302 50 50 – 30 = 203 60 60 – 50 = 104 65 65 – 60 = 55 65 65 – 65 = 06 60 60 – 65 = -5

Y

Maximum TU

5 1 TU 10

Total 20Utility

300

Burgers Consumed Per Unit of Time X

MarginalUtility

Burgers Consumed Per Unit of Time MU

Y

X

0

CONSUMER’S EQUILIBRIUM: A consumer reaches equilibrium position, when he maximizes his total

utility given his income and prices of commodities he consumes. Analyzing consumer’s equilibrium requires answering the question as to how a consumer allocates his money income between the various goods’ and services he consumers to maximize his total utility.

Before we proceed, let us describe the assumptions of the Marshalling approach to the determination of consumer’s equilibrium.ASSUMPTIONS:

Rationality . It is assumed that the consumer is a rational being in the sense that he

satisfies his wants in the order of their merit. It means that he consumes first a commodity, which yields the highest utility and the last which gives the least.

Limited Money Income . The consumer has a limited money income to spend on the goods and

services he consumes.

Maximization of Satisfaction . Every rational consumer intends to maximize his satisfaction from his

given money income.

Utility is Cardinally Measurable . The cardinality assumes that utility is cardinally measurable, i.e. it can

be measured in absolute terms. For them, utility of one unit of a commodity equals the amount of money paid for it.

Diminishing Marginal Utility . The utility gained from successive units of a commodity consumed

decreases as a consumer consumes a larger quantity of the commodity.

Constant Utility of Money . The marginal utility of money (Mum) remains constant and each unit of

money has utility equal to 1, i.e., Mum=1

Utility is Additive . Cardinality maintain that utility is not only cardinally measurable but

also utility derived from various goods and ser vies consumed by a consumer can be added together to obtain the total utility.

DEMERITS OF CARDINAL APPROACH

The following are the major weak demerits of the Cardinal Utility Theory as pointed out by the economists.

First, the very first assumption of cardinal approach that utility is cardinally (or objectively) measurable is untenable. Utility is a subjective concept, which cannot be measured objectively.

Second, cardinal utility approach assumes that marginal utility of money remains constant and serves as a measure of utility. This assumption is unrealistic because marginal utility of money, like that of all other goods is subject to change. And, therefore, it cannot serve as a measure of utility derived from goods and services.

Third, the psychological Law of Diminishing Marginal Utility has been established from introspection. This Law is accepted as an axiom without empirical verification.

Fourth, the cardinal utility approach and derivation of demand curve on the basis of this approach are based on the ceteris paribus assumption, which is unrealistic. It is for this reason that this theory ignores the substitution and income effects, which might operate simultaneously.

Finally, the cardinal approach considers that the effect of price changes on the demand curve is exclusively price effect. This assumption is also unrealistic because price effect may include income and substitution effects.

THE MEANING AND NATURE OF INDIFFERENCE CURVE: -

An indifference curve may be defined as the locus of points, each representing a different combination of two goods but yielding the same level of utility or satisfaction. Since each combination of two goods yields the same level of utility, the consumer is indifferent between any two combinations of goods when it comes to making a choice between them. A consumer is very often confronted with such a situation in real life. Such a situation arises because he consumes a large number of goods and services, and often he finds that one commodity for another, and to make various combinations of two substitutable goods. It may not be possible for him to tell how much utility particular combination gives, but it is always possible for him to tell which one between any two combinations is preferable to him. It is also possible for him to tell which combinations give him equal satisfaction. If a consumer is faced with equally good combinations he would be indifferent between the combinations. When such combinations are plotted graphically, the resulting

curve is known as indifference curve. Indifference curve is also called so-utility Curve and Equal Utility Curve.

For example: Suppose that a consumer consumes only two commodities X and Y and he makes five combinations, which he calls a, b, c, d and e. All these combinations yield him equal utility. Therefore, he is indifferent between the different combinations of the two commodities, X and Y. His combinations are presented in Table 6.1, which may be called as indifference schedule – a schedule of various combinations of two goods, between which a consumer is indifferent. The last column of the table shows an undefined utility (u) derived from each combination of X and Y. If combinations a, b, c, d. and e given in Table 6.1 are plotted and joined to form a smooth curve (as shown in Fig.6.1), the resulting curve is known as indifference curve. On this curve, one can locate many other points showing many other combinations of X and Y which yield the same satisfaction. Therefore, the consumer is indifferent between the different combinations revealed by the indifferent curve.

Indifference Schedule of Commodities X and YCombination Commodity Y Commodity X Utility

A 25 5 UB 15 7 UC 10 12 UD 6 20 UE 4 30 U

Assumptions of Ordinal Utility Theory

The indifference curve analysis of consumer’s behavior is based on the following assumptions:

Rationality : The consumer is a rational being. He aims at maximizing his

total satisfaction, given his income and prices of goods and services he consumes. Furthermore, he has full knowledge of his choices and preferences.

Ordinal Utility : Indifference curve analysis assumes that utility can be

expressed only ordinals or comparatively. That is, the consumer is able to tell only the order of his preferences.

Transitivity and Consistency of Choice : Consumer’s choices are transitive. Transitivity of choice means

that if a consumer prefers A to B and B to C, he must prefer A to C Or, if he treats A= B and B=C, he must treat A =C, consistency of choice means that if he prefers A to B in one period, he will not prefer B to A in another period or treat them as equal. The transitivity and consistency in consumer’s choices may be symbolically expressed as follows

Transitivity: If A>B and B> C then A>C, and Consistency: If A > B, in one period, then B > A or B = A in another.

No satiety : It is also assumed that the consumer is not oversupplied with

goods in question and that he has not reached the point of saturation in case of any commodity. Therefore, a consumer always prefers a larger quantity of all the goods.

Diminishing Marginal Rate of Substitution : The marginal rate of substitution means the rate at which a

consumer is willing to substitute one commodity (X) for another (Y), i.e. the units of Y he is willing to give up for one unit of X so that his total satisfaction remains the same. This rate is given by AY/AX. The assumption is that AY/AX goes on decreasing, when a consumer continues to substitute X for T.

PROPERTIES OF INDIFFERENCE CURVES

Indifference curves have the following four basic properties or characteristics:

Indifference curves have a negative slope; Indifference curves are convex to the origin; Indifference curves do not intersect; Upper indifference curves indicate a higher level of satisfaction than

the lower ones.

These properties of indifference curves, intact, reveal consumer’s behaviour, his choices and preferences and are therefore very important in the modern theory of consumer behaviour. Let us now look into their implications.

Indifference Curves have a Negative Slope In the words of Hirks, So long as each commodity has a positive

marginal utility, the indifference curve must slope downward to the right. The negative slope of an indifference curves implies (a) that the two commodities can be substituted for each other; and (b) that if quantify of one commodity decreases, quantity of the other commodity must increase if the consumer has to stay at the same level of satisfaction. For, if quantity of the other commodity does not increase simultaneously, the bundle of commodities will decrease as a result of decrease in the quantity of one commodity. And, a smaller bundle of goods is bound to yield a lower level of satisfaction.

Indifference Curves are Convex to Origin Indifference curves have not only a negative slope, but are also

convex to the origin. The convexity of the indifference curves requires that the two commodities are imperfect substitutes for each other and that the marginal rate of substitution (MRS) between the two goods decreases as a consumer moves along an indifference curve.

Indifference Curves can Neither Intersect nor be Tangent If two indifference curves intersect or are tangent, it would imply

that an indifference curve indicates two different levels of satisfaction or two different combinations (one being larger than the other) yield the same level of satisfaction. Such conditions are untenable if consumer’s subjective valuation of a commodity is greater than zero.

N

Y

Commodity y

O

Commodity X

X

IC’

IC

AB

M N

Intersecting Indifference Curves

CommodityY

Y

O

Commodity X

X

A

B

IC1

IC

M N

Comparison between Lower & Upper Indifference Curves

Upper Indifference Curves Represent a Higher Level of Satisfaction. An indifference curve placed above and to the right of another

represents a higher level of satisfaction than the lower one. The reason is that an upper indifference curve contains all along its length a larger quantity of one or both the goods than the lower indifference curves. And, a larger quantity of a commodity is supposed to yield a greater satisfaction than the smaller quantity of it, provided MU>o.

EFFECT OF CHANGE IN CONSUMER’S INCOME

We have been concerned so far with consumer’s behaviour assuming that consumer’s income and market prices of goods and services are given. We will now drop these assumptions one by one and examine the consumer’s response to the changes in his income and prices of goods. In this section, we will examine the effects of change in consumer’s income on his consumption behaviour, assuming prices of all goods and services, and consumer’s taste and preference to remain constant. In the following section, we will examine the effect of change in prices.

Income Effect: The Normal Goods Case :- If a consumer’s income changes, his capacity to buy goods and services changes, other things remaining the same. These changes are shown by a parallel shift in the budget line of the consumer- upward or downward. If a

Commodity Y

O

Y

Commodity XX1 X

B

C

IC2

IC1

consumer’s income decreases, his budget line shift downward and if consumer’s income increases, his budget line shift down and if consumer’s income increases, his budget line shifts upward to the right, remaining parallel to the original budget line.

Income Effect: The Inferior Goods Case We have so far been concerned with normal goods. In this section, we

examine the effect of increase in income on the consumption of inferior goods. Whether a commodity is inferior or superior depends on the consumer’s perception about the commodity. In economic analysis, however, an inferior commodity is defined as one whose consumption decreases with increase in consumer’s income.

The Engel Curve The Engel Curve9 is a

function for schedule) showing the relationship between equilibrium quantity purchased of a commodity and the levels of income. In other words, the Engel curve shows the relationship between consumer’s income and his money expenditure on a particular good. It should be borne in mind that income-consumption-curve and Engel Curve are not the same. While income-consumption –curve shows the relationship between

consumer’s income and the quantity consumed of a commodity, Engel Curve shows the relationship between money income and money expenditure on a particular good. But income consumption-curve does provide the necessary information to draw the Engel Curve.

Deviation of Engel Curve for a Normal Good

COMPARISON OF CARDINAL AND ORDINAL UTILITY APPROACHES

Having outlined the indifference curve technique of deriving a Marshallian demand curve, let us now compare the cardinal and ordinal utility approaches to consumer’s analysis and look into the relative merits of the two approaches.

Similarity between the Two Approaches Some of the assumptions made under the two approaches are the

same. For example, both cardinal and ordinal utility approaches assume rationality on the part of the consumer. Both the approaches assume that the consumer aims at maximizing his total utility, given his income and market prices. The diminishing marginal utility assumption of the cardinal utility approach is implicit in the diminishing marginal rate of substitution assumption of the ordinal utility approach.

Superiority of Indifference Curve Approach In spite of their similarity in some respects, Hicksian indifference curve

analysis is superior in many respects to the Marshallian ordinal utility approach. The indifference curve analysis has proved helpful in making some major advances in the theory of consumer behaviour, at least in the following respects:

First, while cardinal utility approach assumes cardinal measurability of utility, ordinal utility approach assumes only ordinal expression of utility.

Y

Y

Income

0Quantity of X

X

ENGEL

The assumptions of indifference curve approach are less stringent or restrictive than those of cardinal utility approach. Besides, the ordinal utility approach does not assume constancy of utility of money. Marshallian assumption of constancy of marginal utility of money is incompatible with demand functions involving more than one good.

Second, indifference curve approach providers a better criterion for the classification of goods into substitutes and complements. This is considered as one of the most important contributions of ordinal utility approach. They cardinal utility approach used the sign of cross-elasticity for the purpose of classifying goods into substitutes and complements. The cross-elasticity between two goods, X and Y is given by

Ey,x=AQy . Px APx Py

If cross-elasticity has a positive sign, it means X and Y are substitutes for each other and if cross-elasticity has a negative sign, it means they are complements is absurd and misleading./ For, the measure of cross-elasticity uses the total effect of a price change (APx) on quantity demanded (AQy) without compensating for the change in real income caused by the change in price of a commodity (i.e.,APx). On the contrary, according to ordinal utility approach, two goods X and Y are substitutes for each other only if cross-elasticity measured after eliminating the income effect is positive.

Although the Hicksian criterion for classifying goods into substitutes and complements in theoretically superior to simple cross- elasticity (unadjusted for real income-effect), economists consider it impracticable. For estimating income and substitution effects of a price-change is an extremely difficult task. On the oth3er hand, the usual cross-elasticity method is feasible because it requires only the knowledge of market demand function which is empirically estimable.

Third, indifference curve analysis provides a more realistic measure of consumer’s surplus compared to one provided by Marshall. Marshallian concept of ‘consumer’s surplus’ is s based on the assumptions that utility is cardinally measurable in terms of money and that utility of money remains constant. Neither of the two assumptions is realistic. Indifference curves analysis, on the other hand, measures consumer’s surplus in terms of ordinal utility. Hicksian measure of consumer’s surplus is of great important in welfare economics and in the formulation and assessment of government policy.

CRITIQUE OF INDIFFERENCED CURVE APPROACH

Although the indifference curve approach is considered to be superior to the cardinal utility approach, it has its own limitations:

First, the main weakness of indifference curve approach lies in its axiomatic assumption that there exists a convex indifference curve. The theory does not establish either the existence or the shape of the indifference curves24. It simply assumes the existence of indifference curves having the property of convexity to the origin.

Second, indifference curve analysis assumes that the consumer has

complete knowledge of his preferences and choices and is capable of ordering them. However the assumption that a consumer is able to order his preferences as precisely as required by the theory is questionable. Moreover, even if this assumption is granted, it remains valid only for a very short period, because consumer’s preferences are continuously influenced by a number of factors, e.g. changes in prices, income, tastes, etc. Hicks has himself admitted this weakness of his earlier theory. He says”—one of the most awkward of the assumptions into which the older theory appeared to be impelled by its geometrical analogy was the notion that the consumer is capable of ordering all conceivable alternatives that might be possibly presented to him; all the portions which might be represented by points on his indifference map. This assumption is so unrealistic that it was s bound to be a stumbling block”

Third, as Hicks has himself admitted, the indifference curve technique can effectively analyse consumer’s behaviour when a consumer has to make choices between the various combinations of only two goods, where more than two commodities are involved, a high power mathematics may have to be used because the geometrical device of indifference curve altogether falls. The use of high-power mathematics obscures the economic content of the analysis.

Fourth, it is alleged that ordinal utility theory is not capable of formalizing consumer’s behaviour when his preferences involve risk or uncertainty in expectations.

Finally, the indifference curve approach rules out the existence of influence of advertising, persistence of consumer’s habit and interdependence of consumer’s preferences. Ordinal utility approach considers that such influences introduce irrationality on consumer’s behaviour, and rules them out. Besides, this theory ignores the speculative demand and consumer’s random behaviour, i.e. his irrational 0purchases based on his impulse, immediate urge, whims, etc. which plays an important role in firm’s pricing and output decisions.

PRICE EFFECT = SUBSTITUTION EFFECT + INCOME EFFECT

When the price of a good changes, the price of the other good as also the consumer’s money income remaining unchanged, the consumer moves from one equilibrium point to another. The overall change on quantity demanded from one equilibrium to another is called the total effect or the price effect.

A change on the nominal price of a commodity actually exerts two influences on quantity demanded.

In the first place, there is change in relative price – a change in the terms at which a consumer can exchange one good for another. The change in relative price alone leads to a substitution effect. The substitution effect of a price change is always negative; it simply means that the price of commodity-x and the quantity demanded of commodity-X always move in opposite direction.

Second, a change in the nominal price of a good (nominal income remaining constant) causes a change in real income, or in the size of the combinations of goods and services a consumer can buy. If the nominal price of one good falls, money income and other nominal prices remaining constant, real income rises because the consumer can now buy more, either of the goods whose price declined or of the other goods. This change in real income leads to an income effect on a quantity demanded. The income effect of a price change may be positive or negative. A positive income effect implies that an increase in income would result in an increased demand of the commodity, and vice –versa. A negative income effect implies that an increase in income would meet with a fall in the demand for the commodity.

Thus the price effect of change in the price of a commodity can be

decomposed into to effect: the substitutions effect and the income effect. Price effect is the total change in quantity demanded as the

consumer moves from one equilibrium to another. Substitution effect is the change in quantity demanded resulting

from a change in relative price after compensating the consumer for the change in real income.

Income effect is the change in quantity demanded resulting exclusively from a change in real income, all other prices and money income held constant.

Hicks ‘ Approach:We know the price effect is the some total of the substitution effect and the

income effect.Let us illustrate it diagrammatically with the help of indifference curves as

in fig.

We begin with the budget line market A1B1, and equilibrium point as Ron IC1. With a fall in the price of commodity –X the budget line rotates to A1B2; the new equilibrium is at point T on a higher in difference curve IC2.

The total change in quantity demanded is form OX1 (at R) toOX2 (at T), i.e. OX2-OX1= X1X2. This may be called the price effect.

This total effect (X1X2) can be decomposed in to effects: substitution effect and income effect.

We have defined substitution effect as the change in quantity demanded resulting from change in relative price after compensating the consumer for change in real income.

“Compensating the consumer for change in real income”. By this expression what we mean is (a) the consumer have experienced a gain in real income due to a fall in the price of commodity- x; (b) we take away this gain from him by reducing the money income to the level so that he remains on the original in difference curve,IC1.

Graphically, we show it by drawing an imaginary budget line, C1C2, which is placed to the left of and is parallel to the new budget A1B1 (The budget line after fall in the price of X).

Had the consumer’s a real income not changed, consumer’s equilibrium point would have shifted to S because of a relative fall in price of X in relation to the price of Y.

At this equilibrium, at S, the consumer would have increased his purchase of X from OX1to OX3.

X1X3 can be regarded as the substitution effect.

We know the total effect is X1X2. Out of this X1X3 is accounted for as the substitution effect. We are still left with X3X2.

Shift from the imaginary budget line CC1 to the actual new budget line A1B2 represents an increase in real income. Since the price rations at CC1 and A1B2are the same, change in quantity demanded (from OX3 to OX2) may be considered as the real income phenomenon. Thus, OX3 to OX2 may be considered as the income effect of the price change.

In short, a fall in the price of x results in:

A change in relative price ratio, and hence an increase in the quantity purchased of X, from OX1 to OX3. OX1to OX3 in the measure of the substitution effect

An increase in the real income of the consumer, and hence an increase in the quantity purchased of X from OX3 to OX2. OX3 to OX2 is the measure of the income effect.

The total effect is the some total of X1X3+X3X2=X1X2,

And may be called the price effect.

Income & Substitution Effects: Hicksian Approach

Slutksy’s Approach

Slutksy also decomposes the rice effect into substitution effect and income effect, by holding real income constant, but in a slightly different way, as would be clear from fig.

To begin with the original budget line to is A1B1. With the fall in the price of X, the budget line changes into A1B2.The equilibrium point shifts from the point R onIC1 to point T on IC3.Slutsky assumes that we take away some nominal income from the

consumer, so that consumer will have to go to point R. this is shown by drawing an imaginary income line passing through the point R (and parallel to A1B2) .

This line is CC1. But at CC1 also find the consumer does opt like to go back to R; instead he prefers S which is on a higher indifference curve. He likes to purchase OX3 quantity of X.

This increased purchase of X, i.e, X1X3, consequent on a fall in the relative price of X may be considered as the substitution effect.

Likewise, an increase in the quantity purchased of X from OX3 to OX2, i.e. X3X2, may be considered as the real income effect.

In short the only difference between the Hicksian and the Slutsky approach relates to the act that real income is held to be constant in different ways. Broadly, the results are the same.

Income & Substitution Effects: Slutsky Approach

Managerial EconomicsRai Business School

Meadows Campus

Submitted To: Submitted By: Mrs. Aruna Vishal Harjani

MBA – 1 Sec - A

CONTENTS

CARDINAL UTILITY THEORY:

THE LAW OF DIMINISHING MARGINAL UTILITY

CONSUMER’S EQUILIBRIUM:

DRAWBACKS OF CARDINAL APPROACH

THE MEANING AND NATURE OF INDIFFERENCE CURVE

PROPERTIES OF INDIFFERENCE CURVES

COMPARISON OF CARDINAL AND ORDINAL UTILITY APPROACHES

CRITIQUE OF INDIFFERENCED CURVE APPROACH

PRICE EFFECT = SUBSTITUTION EFFECT + INCOME EFFECT