criticism of Indifference curve
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Some of the major criticisms regarding indifference curve analysis:
The indifference curve analysis is no doubt regarded superior to the utility analysis, but critics are not lacking in denouncing it. The main points of criticism are discussed below.
(1) Old Wine in New Bottles:
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Professor Robertson does not find anything new in the indifference cure technique and regards it simply ‘the old wine in a new bottle’.
It substitutes the concept of preference for utility. It replaces introspective cardinalism by introspective ordinalism. Instead of the cardinal numbers such as 1, 2, 3, etc., ordinal numbers I, II, III, etc. are used to indicate consumer preferences. It substitutes marginal utility by marginal rate of substitution and the law of diminishing marginal utility by the principle of diminishing marginal rate of substitution.
Instead of Marshall’s proportionality rule or consumer’s equilibrium, which expresses the ratio of the marginal utility of a good to its price with that of another good, the indifference curve technique equates the marginal rate of substitution of one good for another to the price ratio of the two goods. Thus this technique fails to bring a positive change in the utility analysis and merely gives new names to the old concepts.
(2) Away from Reality:
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With regard to the assertion that the indifference curve technique is superior to the cardinal utility analysis because it is based on fewer assumptions, Prof. Robertson observes: “The fact that the indifference hypothesis, the more complicated of the two psychologically, happens to be more economical logically, affords no guarantee that it is nearer to the truth.” He further asks, can we ignore four- feeted animals on the ground that only two feet are needed for walking?
(3) Cardinal Measurement implicit in l.C. Technique:
Prof. Robertson further points out that the cardinal measurement of utility is implicit in the indifference hypothesis when we analyse substitutes and complements. It is assumed in their case that the consumer is capable of regarding a change in one situation to be preferable to another change in another situation. To explain it, Robertson takes three situations A, В and C, as shown in Figure I2.38. Suppose the consumer compares one change in situation AB with another change in situation BC.
He prefers the change AB more highly than the change BC. If another point D is taken, then he prefers the change AD as highly as the change DC. This, according to Robertson, is equivalent to saying that the space AC is twice the space AD and we are back in the world of cardinal measurement of utility. Thus when changes in two situations are compared as in the case of substitutes and complements, it leads to the cardinal measurement of utility.
(4) Midway House:
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Indifference curves are hypothetical because they are not subject to direct measurements. Although consumer choices are grouped in combinations on the ordinal scale, no operational method has been devised so far to measure the exact shape of an indifference curve. This stems from the fact that ‘the peculiar logical structure of the theory has low empiric content.’ The failure of Hicks to present a scientific approach to the consumer’s behaviour led Schumpeter to characterize the indifference analysis as a ‘midway house;’. He remarked: “From a practical standpoint we are not much better off when drawing purely imaginary indifference curves than we are when speaking of purely imaginary utility functions.”
(5) Fails to Explain the Observed Behaviour of the Consumer:
Knight argues that the observed market behaviour of the consumer cannot be explained objectively. It is a mistake not to base the analysis of consumer’s demand on the cardinal utility theory. For instance, the income and substitution effects cannot be distinguished on the basis of mere observation. In fact, what we observe is the composite price effect. Similarly, the theory of complementaries and substitutes based on the principle of marginal rate of substitution cannot be discovered from the market data. Samuelson has explained the observed behaviour of the consumer in his Revealed Preference Theory.
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