What Are The Similarities And Differences Between Marshallian And Hicksian Demand Functoins?


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1) Both the analysis are based on the assumption that the consumer is rational and he is interested to maximize his total utility.   2) Both the approaches follow the proportionality rule. In one it is between price and marginal utility while in the other it is between price and marginal rate of substitution.   *in marshallian utility approach the equilibrium condition for a consumer is :MUx /MUy = Px / Py    *in the indifference curve analysis the equilibrium condition for a consumer is :MRSxy = Px / Py.   3) Marshallian analysis states the assumption that MU of a commodity diminishes as the consumer gets more of it ; whereas in the Hick sian analysis, MRS between commodities also diminishes as the consumer purchases more of a commodity.Superiority of Indifference curves analysis : The indifference curve analysis is considered to be a superior approach in the determination of consumer's equilibrium than marshallian utility analysis.   The comparison of the 2 analysis is as follows:  a) More realistic approach: The Ic curve analysis is more realistic approach to explain consumer behavior than the cardinal utility analysis because the utility analysis assumes "too much" and explains "too little", whereas the indifference curves analysis explains "more and better" with "few and less restrictive" assumptions.  B)Cardinal vs Ordinal measurement of utility: Marshall's theory was based on cardinal approach meaning Quantitative , which is that utility could be measured in numbers. Hicks theory was based on ordinal approach meaning Qualitative , which is that utility should be measured in equal, more or less.   C) Effects felt: According to Marshall's theory price, income and substitution effects would remain constant. Whereas Hick's theory states that these 3 factor keep changing , thus it would result in an more perfect outcome on the consumers equilibrium.d) Price effect through changes in real income: Marshall's theory does not measure how real income can be measured . Whereas hick's theory measures the effect of an increase in real income resulting from a fall in the price of a commodity by shifting on to a higher indifference curve and vice versa.   E) Giffen Paradox : Marshall theory does not break up the 'price effect' into 'income effect' and 'substitution effect' and thereby it does not show the negative price effect in case of giffen goods. Whereas the Hick's analysis the relative nature of various goods is explained e.g. Inferior and superior. The ic curve divides the 'price effect' into 'income' and 'substitution'.  F) Greater scope: Marshallian utility analysis bypassed the issue of interrelated goods i.e. Substitutes and compliments.. Whereas prof Hick's has given a detailed analysis of consumer behavior for related goods.   G) Marginal utility of money: According to marshall theory MU of money remains constant ; whereas in hicks theory , it varies. Meaning MU of money cannot remain constant , e.g. When a consumer purchases products, he pays for them, hence he departs without his money; thus reduction of money raises its marginal utility, which proves Hick's point of view that M.U. Of money does not remain constant.

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