The following article will guide you about how indifference curve analysis id superior over utility analysis.
1. It Dispenses with Cardinal Measurement of Utility:
The entire utility analysis assumes that utility is a cardinally measurable quantity which can be assigned weights called ‘Utils’.
If the utility of an apple in 10 utils of a banana it is 20 utils, and of a cherry 40 utils, then the utility of a banana is twice that of an apple and of cherry four times that of apple and twice that of banana. This is not measurability but transitivity.
In fact, the utility which a commodity possesses for a consumer is something subjective and psychological and therefore cannot be measured quantitatively. The indifference approach is superior to the utility analysis because it measures utility ordinarily.
2. It studies Combination of Two Goods Instead of One Good:
ADVERTISEMENTS:
The utility approach a single commodity analysis in which the utility of one commodity is regarded independent of the other. Marshall avoided the discussion of substitutes and complementary goods by grouping them together as one commodity.
While the Indifference Curve technique is a two-commodity model which discusses consumer behaviour in the case of substitutes complementary and unrelated goods. It is thus superior to the utility analysis.
3. It Provides a better Classification of Goods into Substitutes and Complements:
Early days economists explained substitutes and complements in terms of cross elasticity of demand. Prof. Hicks considers this inadequate and explains them after making compensating variations in income. He thus overcomes the ambiguity to be found in the traditional classification of substitutes and complements.
4. It Explains the Law of Diminishing Marginal Utility without the Unrealistic Assumptions of the Utility Analysis:
The utility analysis postulates the Law of Diminishing Marginal Utility which is applicable to all types of goods including money. But this law is based on the cardinal measurement, it possesses all the defects inherent in the latter.
ADVERTISEMENTS:
Prof. Hicks says that it is a positive change and it is scientific and at the same time, free from the psychological quantitative measurement of the utility analysis. The application of this principle in the fields of consumption, production and distribution has made economics more realistic.
5. It is free from the Assumption of Constant Marginal Utility of Money:
The Utility analysis assumes constant marginal utility of money. Marshall justifies it on the plea that an individual consumer spends only a small part of his whole expenditure on any one thing at a time. This assumption makes the utility theory unrealistic in more than one way. On the other-hand, the Indifference Curve technique analyses the income effect when the income of the consumer changes.
6. It Explains the Dual Effects of the Price Effect:
Utility analysis fails to analyse the income and substitution effects of a price change. In the indifference curve technique when the price of a good falls, the real income of the consumer increases. This is the income effect.
Further, when the price falls, the goods become cheaper. This 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 goods changes and its dual effect in the form of the income and substitution effect.
7. It Explains the Proportionality Rule in a Better Way:
ADVERTISEMENTS:
The Indifference Curve technique explains consumer’s equilibrium in a similar but in a better way than the Marshallian proportionality rule. The consumer is in equilibrium at a point where his budget line is tangent to the Indifference Curve. At this point the slope of the Indifference Curve equals the budget line.
8. It Explains the Law of Demand more Realistically:
The Indifference Curve technique explains the Law of Demand in a more realistic manner. It explains the effect of the fall in the price of an inferior goods on consumer’s demand. Giffen goods which remained a paradox for Marshall through-out, have been ably explained with the help of this technique.