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Which of the following is one of the assumptions of the indifference curve analysis?
  • a)
    Independent utility
  • b)
    Cardinal utility
  • c)
    Ordinal utility
  • d)
    Constant marginal utility of money
Correct answer is option 'C'. Can you explain this answer?
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Which of the following is one of the assumptions of the indifference c...
The ordinal utility theory or the indifference curve analysis is based on four main assumptions.
Rational behavior of the consumer.
Utility is ordinal.
Diminishing marginal rate of substitution.
Consistency in choice. 
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Most Upvoted Answer
Which of the following is one of the assumptions of the indifference c...
Ordinal utility

The assumption of ordinal utility is one of the fundamental assumptions of indifference curve analysis. The concept of ordinal utility suggests that individuals can only rank their preferences for different goods and services, but cannot assign specific numerical values to them. In other words, individuals can determine whether they prefer one bundle of goods over another, but they cannot measure the intensity of their preferences.

Explanation:
Indifference curve analysis is a graphical representation of consumer preferences and choices. It is based on the assumption that individuals can rank their preferences for different combinations of goods and services. This assumption is known as ordinal utility.

Ordinal utility vs. Cardinal utility:
Ordinal utility is different from cardinal utility. Cardinal utility assumes that individuals can assign specific numerical values or utilities to different goods and services, allowing for precise comparisons of utility levels. However, ordinal utility rejects the idea of assigning specific numerical values to utility and focuses solely on ranking preferences.

Importance of ordinal utility:
The assumption of ordinal utility is crucial in indifference curve analysis because it allows economists to analyze consumer behavior and make predictions about consumer choices. By examining the shape, slope, and intersection of indifference curves, economists can determine the preferences and choices of consumers.

Indifference curves:
Indifference curves are graphical representations of the various combinations of goods and services that provide the same level of satisfaction or utility to an individual. These curves are derived from the assumption of ordinal utility, as individuals are assumed to be indifferent between different combinations on the same curve.

Conclusion:
The assumption of ordinal utility is a key assumption of indifference curve analysis. It recognizes that individuals can rank their preferences for different goods and services, but cannot assign specific numerical values to them. This assumption allows economists to analyze consumer behavior and make predictions about consumer choices based on indifference curves.
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Read the following passage and answer the question that follows:The ordinalist revolution originates in the criticism of the psychological foundations of the theory of demand, namely, the principle of decreasing marginal utility as Alfred Marshall ([1890] 1898) used it. The rejection of hedonist hypotheses led Irving Fisher (1892) and Pareto (1896–97, 1900, 1909) to favour an objective or “positive” approach to economic concepts.The “ordinalist revolution” (Ormazabal 1995, 116) is grounded in a methodological transformation of economics that put the facts of objective experience as a foundation of economics and provided a research program for the ensuing years (Green and Moss 1993; Lewin 1996). Mathematically, ordinalism is entirely based upon the idea that one can dispense with the use of a specific utility function and that no meaning shall be attached to utility measurement, except as an ordinal principle.Clearly, the development of ordinalist must be separated from the introduction of the concept of the indifference curve. Ordinalism was first advocated in Fisher’s “Mathematical Investigations' ' (1892) and Pareto’s Suunto (1900) and Manual ([1909] 1971), while the indifference curve had appeared in F. Y. Edge worth’s Mathematical Psychics (1881). It was thus only through Fisher’s and Pareto’s recasting that the concept of the indifference curve became irreversibly associated with the promotion of ordinalism.Along the way, the recasting of the theory of choice along ordinalist lines raised a number of issues (about integrability, measurability, and complementarity) that would be progressively settled. A reasonable closing date for the ordinalist revolution is 1950, after Houthakker (1950) and Samuelson’s (1950) contributions.From the late 1920s, the Paretian school was progressively gaining a larger audience while the use of the concept of marginal utility and other derivative concepts was challenged. Consequently, demand theory was recast along the principlesof individual preferences and ordinal utility functions. Nevertheless, English authors proved very silent about the meaning of indifference curves. Most if not all of the reflections after 1920 about the nature of indifference curves took place in America, mainly under the impulse of Henry Schultz at Chicago. This is an American story.Q. Under Cardinal Utility approach, utility is measured in utils.

Read the following passage and answer the question that follows:The ordinalist revolution originates in the criticism of the psychological foundations of the theory of demand, namely, the principle of decreasing marginal utility as Alfred Marshall ([1890] 1898) used it. The rejection of hedonist hypotheses led Irving Fisher (1892) and Pareto (1896–97, 1900, 1909) to favour an objective or “positive” approach to economic concepts.The “ordinalist revolution” (Ormazabal 1995, 116) is grounded in a methodological transformation of economics that put the facts of objective experience as a foundation of economics and provided a research program for the ensuing years (Green and Moss 1993; Lewin 1996). Mathematically, ordinalism is entirely based upon the idea that one can dispense with the use of a specific utility function and that no meaning shall be attached to utility measurement, except as an ordinal principle.Clearly, the development of ordinalist must be separated from the introduction of the concept of the indifference curve. Ordinalism was first advocated in Fisher’s “Mathematical Investigations' ' (1892) and Pareto’s Suunto (1900) and Manual ([1909] 1971), while the indifference curve had appeared in F. Y. Edge worth’s Mathematical Psychics (1881). It was thus only through Fisher’s and Pareto’s recasting that the concept of the indifference curve became irreversibly associated with the promotion of ordinalism.Along the way, the recasting of the theory of choice along ordinalist lines raised a number of issues (about integrability, measurability, and complementarity) that would be progressively settled. A reasonable closing date for the ordinalist revolution is 1950, after Houthakker (1950) and Samuelson’s (1950) contributions.From the late 1920s, the Paretian school was progressively gaining a larger audience while the use of the concept of marginal utility and other derivative concepts was challenged. Consequently, demand theory was recast along the principlesof individual preferences and ordinal utility functions. Nevertheless, English authors proved very silent about the meaning of indifference curves. Most if not all of the reflections after 1920 about the nature of indifference curves took place in America, mainly under the impulse of Henry Schultz at Chicago. This is an American story.Q. How is utility measured in Ordinal utility theory?

Read the following passage and answer the question that follows:The ordinalist revolution originates in the criticism of the psychological foundations of the theory of demand, namely, the principle of decreasing marginal utility as Alfred Marshall ([1890] 1898) used it. The rejection of hedonist hypotheses led Irving Fisher (1892) and Pareto (1896–97, 1900, 1909) to favour an objective or “positive” approach to economic concepts.The “ordinalist revolution” (Ormazabal 1995, 116) is grounded in a methodological transformation of economics that put the facts of objective experience as a foundation of economics and provided a research program for the ensuing years (Green and Moss 1993; Lewin 1996). Mathematically, ordinalism is entirely based upon the idea that one can dispense with the use of a specific utility function and that no meaning shall be attached to utility measurement, except as an ordinal principle.Clearly, the development of ordinalist must be separated from the introduction of the concept of the indifference curve. Ordinalism was first advocated in Fisher’s “Mathematical Investigations” (1892) and Pareto’s Suunto (1900) and Manual ([1909] 1971), while the indifference curve had appeared in F. Y. Edge worth’s Mathematical Psychics (1881). It was thus only through Fisher’s and Pareto’s recasting that the concept of the indifference curve became irreversibly associated with the promotion of ordinalism.Along the way, the recasting of the theory of choice along ordinalist lines raised a number of issues (about integrability, measurability, and complementarity) that would be progressively settled. A reasonable closing date for the ordinalist revolution is 1950, after Houthakker (1950) and Samuelson’s (1950) contributions.From the late 1920s, the Paretian school was progressively gaining a larger audience while the use of the concept of marginal utility and other derivative concepts was challenged. Consequently, demand theory was recast along the principlesof individual preferences and ordinal utility functions. Nevertheless, English authors proved very silent about the meaning of indifference curves. Most if not all of the reflections after 1920 about the nature of indifference curves took place in America, mainly under the impulse of Henry Schultz at Chicago. This is an American story.Q. ______ is a curve showing a different combination of two goods, each combination offering the same level of satisfaction to the consumer.

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Which of the following is one of the assumptions of the indifference curve analysis?a)Independent utilityb)Cardinal utilityc)Ordinal utilityd)Constant marginal utility of moneyCorrect answer is option 'C'. Can you explain this answer?
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