Marshall's utility concept causes
enormous difficulty in the analysis of demand. This concept assumes too much
namely a utility is measurable, it is a subjective phenomenon, marginal utility
of money is constant and utility from one commodity depends on its own
consumption. Modern economists like Prof. J. R. Hicks and R. G. Allen attacked
these assumptions. Further they argued that it is not at all necessary to
measure utility for the purpose of economic analysis. What we need to know is
whether a certain combination of goods has the same utility to the consumer as
another combination of the same goods or whether one combination is preferable to
another combination. Thus modern economies has done away with utility analysis
and evolved the concept of indifference curve. The indifference curve analysis
is an improvement over utility analysis and has removed unrealistic assumptions
of it.
Meaning of
Indifference Curves
Pareto, an Italian economist, first
invented the concept of indifference curve. Edge worth stated this device in
his book 'Mathematical Physics'. Later it was developed and applied to economic
analysis by economists like
Hicks and Allen
Indifference curve is a geometrical
identity that exhibits the various amounts of two or more commodities, which
yield the same satisfaction to the consumer. Some of the important definitions
are as under:
Edge worth
"Indifference
Curve is that path on which a substitution of a particular commodity by another
in any manner or quantity gives the consumer the same satisfaction in any
position."
W. J. Boumol
"An Indifference curve as the
locus of points each of which represents a collection of commodities such that
the consumer is indifference among any of these combinations."
Milton Friedman
"Indifference Curve is a
boundary line separating two areas i. e. areas showing combinations of higher
and lower levels of satisfaction. All points on an indifference curve represent
the same level of satisfaction."
The indifference curve is a
graphical representation of an indifference schedule. Indifference Schedule
lists all those different combinations of the goods, which give exactly the
same satisfaction to the consumer, in other words the consumer is indifferent
between these combinations. It is shown in the following table.
An Indifference Schedule
|
Name of the combination
|
Units of goods X
|
Units of goods Y
|
|
A
|
1
|
30
|
|
B
|
2
|
24
|
|
C
|
3
|
19
|
|
D
|
4
|
15
|
|
E
|
5
|
12
|
|
F
|
6
|
10
|
|
G
|
7
|
9
|
In the table the consumer is
indifferent between seven combinations of goods X and Y. He gets same
satisfaction when we consume 1 X and 30 Y. He gets the same level of
satisfaction when consume 2X and 2Y or 4X and 15Y or 7X and 9Y. When these combinations
are represented graphically and joined together with the help of a curve, we
get an indifference curve. An indifference curve shows the one particular level
of satisfaction. The family or group of indifference curves is known as
Indifference map. In the indifference map a higher indifference curve shows the
higher level of satisfaction. An indifference curve shown below shows various
combinations A, B, C, D, etc. of goods X and Y which Yield the same
satisfaction to the consumer.
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