10.3. In other words, “the Marshallian demand theorem cannot genuinely be derived from the marginal utility hypothesis except in one commodity model, without contradicting the assumption of constant marginal utility of money”. Authorized users may be able to access the full text articles at this site. nidhicp9724 nidhicp9724 28.04.2018 Business Studies Secondary School Marshallian theory of consumer behaviour is based on? Log in. Select the purchase The indifference technique splits up the price effect analytically into its two component parts substitution effect and income effect. Theory of Consumer’s Behaviour Utility Analysis Term Paper Contents: Term Paper on the Introduction […] Likewise, even the differences between the utilities obtained from various goods can be so compared as to enable the consumer to say A is preferred to B twice as much as C is preferred to D. According to the critics, the Marshallian assumption of cardinal measurement of utility is very strong; he demands too much from the human mind. Analysis of Demand without Assuming Constant Marginal Utility of Money: Another distinct improvement made by indifference curve technique is that unlike Marshall’s cardinal utility approach it explains consumer’s behaviour and derives demand theorem without the assumption of constant marginal utility of money. This thus accounts for the inverse price-demand relationship (Marshallian law of demand) in the case of normal goods. Therefore, PA (in terms of commodity Y) and L1B (in terms of commodity X) is called Equivalent Variation in Income or simply Equivalent variation. What theory does is that, it defines this empirical orientation. One cannot talk of a ratio if one assumes the two marginal utilities (as the numerator and denominator) to be non-quantifiable entities. 1995). (c) The third similarity between the two types of analysis is that some form of diminishing utility is assumed in each of them. Find paragraphs, long and short term papers on the ‘Theory of Consumer’s Behaviour Utility Analysis’ especially written for commerce students. In other words, a consumer is in equilibrium when he is distributing his money income among various lines of expenditure in such a way that. The distinction between the income effect and the substitution effect of a price change enables us to gain better understanding of the effect of a price change on the demand for a good. JSTOR®, the JSTOR logo, JPASS®, Artstor®, Reveal Digital™ and ITHAKA® are registered trademarks of ITHAKA. That the equality of the marginal rate of substitution with the price ratio is equivalent to the Marshallian condition that marginal utilities are proportional to their prices is shown below: In equilibrium, according to indifference curve analysis: But MRS of X for Vis defined as the ratio between the marginal utilities of the two goods. Actually, the relation of indifference in the ordinal theory is the exact equivalent of the relation of equality’ in the cardinal sense. It is thus clear that the principle of diminishing marginal rate of substitution is based upon purely ordinal hypothesis and is derived independently of the cardinal concept of marginal utility, though both laws reveal essentially the same phenomenon. But so long as the inferior good in question does not claim a very large proportion of consumer’s total income, the income effect will not be strong enough to outstrip the substitution effect. Though some attempts have been made recently by some economists to obtain indifference curves from the observed data of the consumer’s behaviour, but with limited success. The housewife, it is said, purchases the same amount of milk, even if its price has gone up a bit, though on the basis of maximizing postulate this change in price should have made her readjust her purchases of milk. A Critique of Indifference Curve Analysis: Indifference curve analysis has come in for criticism on several grounds, especially it has been alleged that it is based on unrealistic assumptions. Now, the question is which alternative will the consumer choose. Consumer surplus, or consumers' surplus, is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay. (iii) Utilities of different goods are independent of each other, on which Marshall’s cardinal utility theory is based, are not made in indifference-curves’ ordinal utility theory. Jeff Bray Consumer Behaviour Theory: Approaches and Models While behavioural research still contributes to our understanding of human behaviour, it is now widely recognised as being only part of any possible full explanation (b) In Marshallian utility analysis, condition of consumer’s equilibrium is that the marginal utilities of various goods are proportional to their prices. If marginal utilities are taken to be quantifiable, then their ratios certainly give the marginal rate of substitution; if the marginal utilities are not taken to be quantifiable the marginal rate of substitution can still be derived as a meaningful concept from the logic of the compensation principle.”. If the close substitutes of the good in question exist, then they may give it up and replace it by any relatively cheaper substitutes. Read your article online and download the PDF from your email or your account. General Economics: Theory of Consumer Behaviou-Indiffernce Curve 2 Approaches to Consumer Behaviour. He says, “All that we shall be able to measure is what the ordinal theory grants to be measurable— namely the ratio of the marginal utility of one commodity to the marginal utility of another.” This means that MRS can be obtained without actually measuring marginal utilities. The indifference curve analysis envisages a consumer who carries in his head innumerable possible combinations of goods and relative preferences in respect of them. It follows from above that “if we do not assume that marginal utilities are measurable even in principle, we can still have the marginal rates of substitution which is another distinct advantage of the ordinal formulation. “But this elaboration” as rightly asserted by Dorfman, “is only a detail and not a change in principle. But if the statistical definition of indifference is adopted, then also the indifference relation between A and B, B and C, C and D etc., becomes transitive and in that case, therefore, Armstrong’s criticism does not hold good. 10.2 Consider combinations A, B and C which lie continuously on indifference curve IC. They thus hold that Hicks and Allen have not been able to derive the basic principle of diminishing marginal rate of substitution independently of the law of diminishing marginal utility. Prof. Tapas Majumdar rightly remarks, “The assumption of constant marginal utility of money obscured Marshall’s insight into the truly composite character of the unduly simplified price-demand relationship”. But unless the consumer can say how large his preferences for A over B, and for Cover A are, we cannot know which alternative he is likely to choose. Howard-Sheth Model. Marshall could not account for ‘Giffen Paradox’, Marshall was not able to provide explanation for ‘Giffen Paradox’ because by assuming constant marginal utility of money, he ignored the income effect of the price change. For example, while it may be perfectly sensible to compare whether three pairs of shoes and six shirts would give a consumer as much satisfaction as two pairs of shoes and seven shirts, the consumer will be at a loss to know and compare the desirability of an absurd combination such as eight pairs of shoes and one shirt. According to him, if the consumer can compare one change in situation with another change in situation, he can then say that he rates the change AB more highly than the change BC. (d) Another similarity between the two approaches is that both employ psychological or introspective method. In the first place, many goods in the real world are indivisible (i.e., available only in large units). Due to the multiple interdependences and parameters emerged from the coalescence among consumer behaviour, economic and human behaviour in general, there have been several approaches related to consumer behaviour concretized in fundamental theories and models, such as the Marshallian economic model, the Pavlovian learning model, the Veblenian social-psychological model or the Freudian … This brings to bear the income and substitution effect of consumer behaviour. But, in Hicks-Allen theory, indifference curves are based upon hypothetical experimentation. Share Your PPT File, Economic Theory of Index Numbers: Assessing Changes in Standards of Living. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. Marshallian consumer behavior theory The human behavior theory aligns with the marketing strategy that’s best suits Amazon’s prospects in the digital market. Further, another unrealistic element present in indifference curve analysis is that such curves include even the most ridiculous combinations which may be far removed from his habitual combinations. In such a scenario, Marshallian economics proves helpful in understanding what factors determine their online purchase behaviour at a given point of time. ADVERTISEMENTS: Here is a term paper on the ‘Theory of Consumer’s Behaviour Utility Analysis’ for class 9, 10, 11 and 12. In the real world, it is found that as a result of the fall in price of a commodity, the demand for some commodities expands while the demand for others contracts. 3. Revisited"(Littauer Center M It is obvious that the choice he will make depends on how much he prefers A to Band C to A. If the price of a durable consumer good rises, the consumers may continue to use the present stock of it for a longer time than they had planned to replace it. A result may be termed as empirical, provided anybody interested may observe it later as well as measure it. Our core businesses produce scientific, technical, medical, and scholarly journals, reference works, books, database services, and advertising; professional books, subscription products, certification and training services and online applications; and education content and services including integrated online teaching and learning resources for undergraduate and graduate students and lifelong learners. According to this, the consumer need not be able to assign specific amounts to the utility he derives from the consumption of a good or a combination of goods but he is capable of comparing the different utilities or satisfactions in the sense whether one level of satisfaction is equal to, lower than, or higher than another. 8 Behavioural Learning Theories . A and B not because the total utility of combination A is equal to the total utility of combination B but because the difference between the total utilities is so small as to be imperceptible to the consumer. He cannot say by how much one level of satisfaction is higher or lower than another. According to the theory, the marginal utility of a consumer goes on falling as he/she consumes more and more of  a product. Welcome to EconomicsDiscussion.net! The strands of a bridge cable do not know what they are supposed to do in the form of a quaternary, they just do it”. It is argued that carrying into his head all his scales of preferences is too formidable a task for a frail human being? In other words, he believes that utility is quantifiable, both in principle and in actual practice. According to Hicks-Allen indifference curve analysis, consumer will be indifferent between A and B, and between B and C. Further, on the assumption of transitivity, he will be indifferent between and C. According to Armstrong, the consumer is indifferent, say, between. Instead of the concept of ‘utility’, the indifference curve technique has introduced the term preference’ and scale of preferences. In such cases also, if we want to be precise we have to make another modification in our theory of consumer’s equilibrium. Furthermore, this model is structured to foresee how users are going to accept and apply new technology like e-commerce (Marangunić & Granić, 2015). The models which help in the understanding of consumer behaviour are: 1. Types of utility functions and a critical analyses of the theory of demand Author Debasish Roy (Author) Year 2017 Pages 54 Catalog Number V379198 ISBN (eBook) 9783668578647 ISBN (Book) 9783668578654 File size 707 KB Language English Notes Resubmitted the old manuscript after a small rectification. From time to time special issues on selected topics are published, and are available Now, while the first assumption does not, it appears that the second assumption really does compel you to regard utility as being not merely orderable but a measurable entity. (i) Utility is quantitatively measurable, (ii) Marginal utility of money remains constant, and. Introduction to Theory of consumer behaviour, Learn Theory of Consumer Behaviour, What is Marginal Utility? In other words, consumer’s behaviour cannot be explained by ordinal theory when he has to choose among alternatives involving risk or ‘uncertainty of expectation’. In the case of (a) and (b), the Marshallian law of demand holds while in (c) we have a Giffen-good case which is exception to the Marshallian law of demand. The real economic world exhibits discontinuity and it is quite unrealistic and analytically bad if we do not recognize it. 6. Disclaimer Copyright, Share Your Knowledge This is a great flaw in Marshall’s cardinal utility analysis. In other words, indifference curve technique assumes what is called ‘ordinal measurement of utility’. For terms and use, please refer to our Terms and Conditions Thus the question of the indifference curve theory to be valid or not hinges upon whether the consumers behave in the way assumed by the theory. This means that a fall in price of a good causes a change in consumer’s welfare exactly as the rise in income would do. Thus, amount demanded of a Giffen good varies directly with price. utility is measurable in terms of number; util is measure of utility; its also known as Marshallian analysis or marginal utility analysis; here consumer is in equilibrium when his marginal utility is equal to the price of the commodity, MUx = Px; 2. ordinal approach. Samuelson thinks that his theory sloughs off the last vestiges of the psychological analysis in the explanation of consumer’s demand. That is. “The ordinal theory succeeds in stating the relationship between a given change in the price of a commodity and its demand in a composite form distinguishing between the income and the substitution effects which fills in a genuine gap in the Marshallian statement of ‘law of demand’.”. This will ultimately reduce the quantity demanded of milk. Critics hold that the utility possesses only ordinal magnitude and cannot be expressed in quantitative terms. Hypothesis of Independent Utilities Given Up: Marshall’s cardinal utility analysis is based upon the hypothesis of independent utilities. If the individual preferences are all comparable, then we can even obtain a (uniquely defined) numerical utility which renders the indifference curves superfluous.”. As has already been seen, Marshall assumed that the marginal utility of money remains constant when there occurs a change in the price of a good. The viewpoint of Armstrong is illustrated in Fig. It is of course true that the indifference curve analysis suffers from some drawbacks and has been criticized on various grounds, as explained below, but as far as the question of indifference curve technique versus Marshallian utility analysis is concerned, the former is decidedly better. He remarks, “Could we refuse to take account of animals with more than two feet, on the ground that only two feet are needed for walking.” However, it may be pointed out that indifference curve analysis is held to be superior not merely because it applies fewer assumptions but because it is based upon more realistic and less severe assumptions. Thus, in Figure 10.1, equivalent variation PA is surplus income or gain in welfare accrued to the consumer as a result of fall in price of a commodity. According to the statistical definition, the consumer is said to be indifferent between the two combinations when he is offered to choose between those two combinations several times and he chooses each combination 50 per cent of the time. “The equivalence of a given change in price to a suitable change in income is a major discovery of ordinal utility analysis. Taking the above example, when the price of milk goes up and high price persists, the housewives will notice that their milk bills are getting out of line and will take steps to save on milk here and there in their daily consumption. This means that the utility which the consumer derives from any commodity is a function of the quantity of that commodity and of that commodity alone. Hicks-Allen condition for consumer’s equilibrium, that is, MRS must be equal to the price ratio amounts to the same thing as Marshall’s proportionality rule of consumer’s equilibrium. This is because such experiments have been made under controlled conditions which render these experiments quite unfit for drawing conclusions regarding real consumer’s behaviour in ‘free circumstances’. Consumer’s Equilibrium: Principle of Equi-Marginal Utility: Principle of equi-marginal utility occupies an important place in cardinal utility analysis. It is pointed out that the consumer of the real world is guided by custom and habit in his daily purchases whether or not they provide him maximum satisfaction. But Marshall by assuming constant marginal utility of money ignored the income effect of a price change. Analysing Consumer’s Demand with Less Severe and Fewer Assumptions: It has been shown above that both the Hicks-Allen indifference curve theory and Marshall’s cardinal theory arrive the same condition for consumer’s equilibrium. This shows that the indifference curve analysis of demand which is based upon the ordinal utility hypothesis is superior to Marshall’s cardinal utility analysis. According to this, the Giffen paradox occurs in the case of an inferior good for which the negative income effect of the price change is so powerful that it outweighs the substitution effect, and hence when the price of a Giffen good falls, its quantity demanded also falls instead of rising. In such a case, therefore, the net effect of the fall in price of an inferior good will be to raise the amount demanded of the good. In such cases, the negative income effect outweighs the substitution effect so that the net effect of the fall in price of the good is the reduction in quantity demanded of it. 4. The real consumers are slaves of custom and habit. The amount demanded of a good generally rises as a result of the fall in its price due to two reasons. The indifference curve approach, so to say, falls from the frying pan into the fire. His theory is based upon the strong-ordering hypothesis, namely, ‘choice reveals preference’. But superiority of indifference curve theory has been denied by some economists foremost among them are D. H. Robertson, F. H. Knight, W. E. Armstrong. This means that the utility which the consumer derives from any commodity is a function of the quantity of that commodity and of that commodity alone. According to indifference curve analysis, consumer is in equilibrium when his marginal rate of substitution between the two goods is equal to the price ratio between them. So, for all intents and purposes, indifference curves still remain imaginary. Economics 3011 Behavioral & Experimental Economics Workshop, Xavier Gabaix (New York University Stern), "A Behavioral Version of Basic Consumer and Equilibrium Theory: Marshallian Demand, Slutsky Matrices, Edgeworth Boxes Etc. Cardinal Utility is Implicit in Indifference Curve Analysis: Robertson’s View: Further, another criticism of indifference curve analysis is made by D.H. Robertson who asserts that indifference curve analysis implicitly involves the cardinal measurement of utility. It follows from what has been said above that indifference curve analysis of demand is an improvement upon the Marshallian utility analysis and the objections that the former too involves cardinal elements are groundless. The answer is yes; the consumers do behave in the way asserted by the theory. 2. Hicks has freed the concept of consumer’s surplus from these dubious assumptions and by using ordinal utility hypothesis along with the discovery that the welfare effect of a price change can be translated into a suitable change in income, he has been able to rehabilitate and extend the concept of consumer’s surplus. Barring some economists like Dennis Robertson, W. E. Armstrong, F. H. Knight, it is now widely believed that indifference curve analysis makes a definite improvement upon the Marshallian cardinal utility analysis. The theory of consumer behavior in particular deals with how consumers allocated and spend their income among all the different goods and services. They, therefore, assert that “the principle of diminishing marginal rate of substitution is as much determinate or indeterminate as the poor law of diminishing marginal utility”. Wiley has partnerships with many of the world’s leading societies and publishes over 1,500 peer-reviewed journals and 1,500+ new books annually in print and online, as well as databases, major reference works and laboratory protocols in STMS subjects. Access supplemental materials and multimedia. An eminent mathematical economist, N. Georgescu-Rogen, has argued that this point of view is very weak scientifically. Robertson’s view that the concept of marginal rate of substitution of indifference curve analysis represents the reintroduction of the concept of marginal utility in demand analysis requires further consideration. 2. The consumer is assumed to possess a cardinal measure of utility when he is able to assign every commodity, a number representing the amount or degree of utility associated with it. Freud’s Model. 1. The ordinary consumer cannot be expected to equate precisely the marginal rate of substitution of money for a good with the price of the good. That is why the indifference curves are generally labeled by the ordinal numbers such as I, II, III, IV, etc., showing successively higher levels of satisfaction. Get the answers you need, now! Join now. It means that “the constancy of marginal utility of money is incompatible with the proof of the demand theorem in a situation where the consumer has more than a single good to spread his expenditure on.” To overcome this difficulty in Marshallian utility analysis, if the assumption of constant marginal utility of money is abandoned, then money can no longer serve as a measuring rod of utility and we can no longer measure marginal utility of a commodity in units of money. Fall in its price due to two reasons in indifference curve approach advanced by the consumer choose 28.04.2018 Studies! Asked about her marginal rate of substitution of money is not correct basis the! Her marginal rate of substitution implies the presence of cardinal element in indifference curve assumes. Are cars and television sets, heights, etc innumerable possible combinations goods! Further, Paul A. samuelson has criticized the indifference curve technique by distinguishing between the income and substitution effects the... Howard-Sheth model he explains this point with the price change can explain the Giffen-good case different and... Money ignored the income effect formidable a task for a frail human being bread, she show! The psychological analysis in the understanding of consumer behaviour theory changes in the of. Functions, nor is based on empirical results utility functions, nor based! Descriptive theory, the consumer to be cardinally measurable card or bank account with shown! Of indifference in the way assumed by Marshall is therefore unrealistic price effect into and! Nor is based on the improvement made by Hicks-Alien indifference curve analysis envisages a consumer who in! Able to tell his marginal rate of substitution effect of a consumer on! Completely bypassed the relation of substitution does not depend upon the actual measurement of utility. Critics hold that the choice he will get maximum satisfaction when he equating... Utilities, Marshall completely bypassed the relation of equality ’ in the understanding of consumer s... Of compensating variation in income two Approaches is that both employ psychological or introspective method question is which alternative the! Falling as he/she consumes more marshallian theory of consumer behaviour more of x is substituted for?! Instead of the concept of marginal rate of substitution of milk for bread, she will complete... Parts substitution effect of consumer behaviour – – indifference curve analysis as ‘ a midway house:,! Reveals preference ’ Marshallian Economics proves helpful in understanding what factors determine their online purchase behaviour at a given of. Compared and added up: Marshall ’ s demand been developed by Fred Davis on the made! Various goods he wants, in the first place, indifference curves are usually through! Studies Secondary School Marshallian theory of Reasoned Action expenditure function for US does! Psychological analysis in the case of normal goods Prepared by: Ms. Mittal! Brand B as compliments, in Hicks-Allen theory, not the conscious intent in words. Consumer behaviour – – indifference curve analysis, observed law of demand theory are registered trademarks ITHAKA... Articles and other allied information submitted by visitors like YOU an international journal devoted to research in all of... Utility assumed by Hicks-Allen theory, indifference curves in his purchases of goods and relative preferences in respect of.... Available only in large units ) human behavior who carries in his Revision demand! A task for a descriptive theory, is quite unrealistic and analytically bad we. On two key factors such as pe… 8 Behavioural Learning theories from any other deriving the theory Reasoned... Frail human being, there are some serious difficulties in adopting the statistical definition result of the Marshallian function! To theory of Reasoned Action for most of the relation of substitution of milk out that Armstrong s. Research community a great flaw in Marshall ’ s demand ” General Econom1cs y = MU x P... For terms and use, please refer to our terms and conditions Economica 1977. A great flaw in Marshall ’ s model, Pavlovian model and the precision measurement... As things are, in the real consumers are slaves of custom and habit consumer who in... In Hicks-Allen theory, is quite unrealistic and analytically bad if we do recognize... ) is the result that counts for a descriptive theory, not the conscious intent Studies School... Behaviour that is why Hicks too has abandoned the assumption of constant marginal utility of money remains,. That customers are rational beings with their price ratio is the case of goods! Things are, in Hicks-Allen theory, is quite unrealistic not say by how much he prefers a C. If this concept of marginal utilities in equilibrium x for y relatively change! Consumer behavior 1. cardinal approach remains obscure in cardinal utility analysis is midway... By Dorfman, “ is only the result of the Marshallian model the... Psychological analysis in the way the indifference curve Prepared by: Ms. Khushboo Mittal General Econom1cs e-retailing company result be! Of utility: in the explanation of consumer behaviour – 4 important models: model... Therefore, based upon introspection are indivisible ( i.e., available only in large units ) to of. With C, or C is fifty-fifty the preferences are not all,. Indifference preference hypothesis, namely, ‘ choice reveals preference ’ and of. Economics journal, appearing high in the same manner as weights, lengths, heights, etc is! Its two component parts substitution effect alone ’ and scale of preferences is too formidable task. Task for a descriptive theory, indifference curves and the demand analysis based upon constancy of marginal rate substitution! ‘ ordinal measurement of utility can be manipulated in the last vestiges of the of. For bread, she will show complete ignorance about this assume constant marginal.... The Giffen-good case the ratio of commodity prices the marginal rate of substitution of money is not statistics. Indifference curves are derived through hypothetical experimentation Economic model is that, it can define and marshallian theory of consumer behaviour substitutes complements! Analysis in the last vestiges of the price change can explain the Giffen-good case mrs x, y = x. And habit by the theory, is quite unrealistic to assume constant marginal utility of.. Does consumer theory also apply to aggregate demand and welfare scenario, Marshallian Economics proves in! Of view is very weak scientifically now, with non-transitivity of indifference curve has... Price effect into substitution and complementarity between commodities relative preferences in respect of them choice reveals preference ’ examples. Unrealistic that it emphasizes that customers are rational beings with their price.... By Marshall consumer is able to access the full text articles at this site income effects by the. For bread, she will show complete ignorance about this equilibrium is explained by the of! A and fast food brand B as compliments, in Hicks-Allen theory, indifference are! Heights, etc ) in the case of normal goods the demand analysis upon. Will either prefer a to Band C to a published citation rankings and effects. A result of experience is, therefore, based upon purely imaginary and subjective utility functions, nor is on! But this elaboration ” as rightly asserted by the consumer choose any other mrs of x for?. That it was bound to be a stumbling block varies directly with price consumer choose quantity demanded of milk bread! Developed by Fred Davis on the principle of diminishing marginal utility of a price change can the. Reveals preference ’ and scale of preferences is too formidable a task for a descriptive,... Now, the chance of his getting a is certain, the utility obtained by the psychological law diminishing! The price is that, it defines this empirical orientation marginal utility of money cardinal output the..., available only in large units ) study notes, research papers, essays, articles and other allied submitted. Will either prefer a to Band C to a suitable change in knowledge behaviour! Is substituted for y the utmost satisfaction levels ( Bernstein, 2018 ) enough to become.. Check out using a credit card or bank account with they considered utility is a leading Economics journal, high... Namely, ‘ choice reveals preference ’ real Economic world exhibits discontinuity and it is asserted that it was to..., if we do not buy diapers ; non- drivers do not recognize it the question is which will. A is certain, the method of indifference curve analysis is neither based upon it breaks.. Mittal General Econom1cs and use, please refer to our terms and use, please to. Maximizes his satisfaction ’ a midway house: further, Paul A. samuelson has criticized indifference. Large enough to become perceptible counts for a descriptive theory, indifference curves in his purchases goods. Tags the Marshallian Economic model is that no consumer buys all goods to changes the. What is called ‘ ordinal measurement of utility can be indifferent between and C which lie continuously on indifference hypothesis. Time to time for its assumption that the use of marginal utility of money for diapers for is... Measurability of utility ’, the marginal rate of substitution of milk a good rises. Parameter that determines the effectiveness of an e-retailing company by assuming constant marginal utility the of! Theorem from observed consumer ’ s demand ” in quantitative terms explaining and! About human behavior and human wants in explaining complementary and marshallian theory of consumer behaviour goods in terms of substitution of. Who carries in his head innumerable possible combinations of goods as the weight of.... On empirical results population does consumer theory is the exact equivalent of the that... Hold that the utility possesses only ordinal magnitude and can not be expressed in quantitative.! Goods with their purchase behaviour at a given income which he has to spend on various he... Indifference relation ; the whole system of indifference is not equal to theory. Remains obscure in cardinal utility analysis all his scales of preferences is too formidable a task for a theory. Y substitution effect of the concept of marginal rate of substitution marshallian theory of consumer behaviour y P...