Marshall mentioned Giffen-good case as an exception to his law of demand. Thus, according to him, money is the measuring rod of utility. The fundamental approach of indifference curve analysis is that it has abandoned the concept of cardinal utility and instead has adopted the concept of ordinal utility.
Where n is any given number?
Therefore, in an indifference map successively higher and higher indifference curves can be denoted by any ascending series, 1, 3, 7, 9…; or 1, 4, 6, 8, 13…; or 1, 2, 5, 8, 10…; etc. Product colour, size, design, and shape: Your academic paper will be written from scratch.
The law of diminishing marginal utility is of crucial significance in explaining determination of the prices of commodities. It is of course assumed that marginal utility of money expenditure in general MUm does not change as a result of the change in the price of one good.
When the price of good X falls to Rs. The greater the utility he expects from a commodity, the greater his desire for that commodity.
Examples of goods that are perfect substitutes are not difficult to find in the real world. This is because consumption of the people is generally diversified so that people spend a small proportion of their income on a single commodity with the result that price-induced income effect even when negative is generally small and cannot therefore outweigh the substitution effect.
He failed to understand the composite character of the effect of a price change. According to this, how much utility a consumer obtains from goods can be expressed or stated in cardinal numbers such as 1, 2, 3, 4 and so forth. Marshall Could not Explain Giffen Paradox: The desire for a commodity by a person depends upon the utility he expects to obtain from it.
Because the goods are indivisible, it is not possible to equate the marginal utility of money spent on them. He will continue to do so until the marginal rate of substitution becomes equal to the price ratio, that is, the indifference curve becomes tangent to the given budget line BL.
Due to this lot of builders and construction companies are blossoming and making good money and customers are receiving what they want. Therefore, although Giffen case is theoretically possible the chance of its occurrence in the actual world is almost negligible. Budget line PL, shows that price of the good X is Rs.
But, as is evident, R lies on the lower indifference curve ICX and will therefore yield less satisfaction than Q.TermPaperMonster will help you with any kind of Term Papers you may be having problems with.
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