INTRODUCTION

Cardinal approach of Marshall provided the basic framework of analyzing the general consumer's
behavior. However modern economists like J. R. Hicks, R.G.D.Allen and others criticized Prof.
Alfred Marshall for his assumption/belief that utility can be measured in cardinal/ measurable
numbers like 10, 15, 20, etc. (Cardinal Approach). Hicks and Allen presented an alternative
approach for the determination of consumer's equilibrium, known as the Indifference Curve
Analysis/Ordinal Analysis/Modern Approach/Hicksian Approach.
We have read that the cardinal approach of consumer's equilibrium is based on the assumption
that utility can be expressed in exact numerical terms. However, the modern-era economists
argued that utility is more of a feeling or a reaction (a psychological yardstick) and therefore
cannot be measured in absolute numbers. This gave rise to the ordinal utility approach.
As per this approach, the consumer need not know in quantifiable terms (money terms or utils as
was the case in cardinal approach) the satisfaction derived from the consumption of various com-
modities to make his/her choice/preference.
The word ordinal means "to rank" or "to set position" like 1st, 2nd, 3rd or 4th. The ordinal
approach states that utility is not measurable in absolute terms but in an ordinal/rankable
magnitude/ scale. It means that a consumer can rank various combinations of the given two goods
or 'consumption basket' of two goods as per the satisfaction achieved/acquired from them.
It is adequate and acceptable to him/her 'to be able to rank' various available 'consumption
baskets/combination of goods' according to the satisfaction provided to him by each bundle .
 OBJECTIVES OF THE STUDY
1. To study about the properties of indifference curve
2. To study about the assumptions of indifference curve approach
3. To analyze consumer equilibrium in indifference curve approach
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RELEVANCE OF THE STUDY

METHEDOLOGY OF STUDY
1. WITH HELP OF SECONDARY DATA AVAILABLE
2. REFERING TEXTS
3. BROWSING THROUGH INTERNET TO COLLECT DATA
 INDIFFERENCE CURVE ANALYSIS

CONCEPT OF INDIFFERENE CURVE

Indifference curve: an indifference curve shows different possible combinations of

two goods that yield same level of utility to the consumer

Indifference schedule: tabular presentation of various combinations of two goods

that yield same level of utility to t
PROPERTIES OF INDIFFERENCE CURVE
1. Indifference curve slopes downward to right

2. Indifference curve is convex to origin

3. Higher the indifference curve higher will be the utility

4. Indifference curve do not intersect each other

5. Indifference curve don’t touch any of the axis

The property is the direct result of the assumption of two goods if an indifference curve
touches or cuts any of the axis the assumption is violated. Thus we may say that indifference
curve do not cut or touch either x-axis or y axis
ASSUMPTIONS OF INDIFFERENCE CURVE

1. RATIONALITY
As an assumption rationality refers to the utility maximizing behavior of the
consumer where he aims to draw the maximum possible benefits by selecting an
appropriate bundle from the given consumption bundles the consumer is
assumed to be rational. He aims at maximizing his benefits from consumption
given his income and price of the goods

2. ORDINALITY
As an assumption it refers to a situation where the consumer is in a position to
rank his preferences or utility derived. This will help the consumer to obtain the
preferred bundle. Utility is expected satisfaction that a consumer gets from a
given market basket. In indifference curve analysis utility is an ordinal concept.
Consumer can order or rank subjective utilities derived from the commodities

3. DIMINISHING MARGINAL RATE OF SUBSTITUITION

Scale of preferences are ranked in terms of indifference curves. Indifference
curves are downward sloping convex-to-the origin curves. The slope of
indifference curve is called Marginal Rate of Substitution (MRS) of X for Y. MRS is
defined as the amount of good Y the consumer is willing to give up to consume an
additional unit of good X, while leaving total utility unchanged. An important
assumption is that the MRS of X for Y, decreases with greater quantities of good
X, i.e., the greater the quantities of X, the less willing the consumer will be to give
up Y in exchange for X. This relationship is known as the Law of Diminishing
Marginal Rate of Substitution.
4. CONSISTENCY OF CHOICE
Consistency of choice assumes that the consumer is strictly consistent in his
choice making and maintains the same.. It means that if good X is preferred over
good Y in one time period then consumer will not prefer good y over X in another
time period

5. TRANSITIVITY OF CHOICE
Consumer’s choice are characterized by the property of transitivity. If good X is
preferred to good Y and good Y is preferred to good X then good X is preferred to
good Z

6. MONOTONIC PREFERENCE
This is a crucial assumption of ordinal approach, under which the choices of the
consumer are presumed to be monotonic in nature. This means that he 'prefers a
bundle which contains more at least one of the commodities and no less of the
other commodity'. It refers to the logic that 'a rational consumer would always
prefer more to less' since greater consumption would provide him greater
satisfaction. A consumer's preferences. A consumer is said to be monotonic if and
only if between any two bundles, the consumer prefers the bundle which has
more of at least one of the goods and no less of the other good as compared to
the other bundle.

For Example:
(a) a consumer with monotonic preference will prefer the bundle (2,3) to bundles
(2,2) , (1,3) , and (1,2) bundles

(b) a consumer with a monotonic preference will prefer the bundle (2,2) to (1,1)
(2,1) and (1,2)
 CONCEPTS OF BUDGET LINE

The concept of budget line is pivot to the consumer's equilibrium under

the ordinal approach. It is the guiding force behind the consumer's
decision-making for the consumption of the bundle of the two goods.
Income line or budget line or price line poses the monetary limitation
as to whether the consumer is able to buy the 'desired' bundle or not.
Indifference curve tells us about the perception of the consumer for the
consumption choice/utility, the reality check to this perception is given
by budget line.Budget line sets 'limits to the actual consumption
pattern of the consumer against his 'desires' to consume.
BUDGET LINE : A budget line is a line which shows different possible combinations
of 2 goods that a consumer can buy with given of income and price of
commodities

BUDGET SET: Collection or set of all possible bundles or combinations of two

goods that a consumer can buy with his given income and price of commodities