Prof Hicks has challenged the relevance of cardinal approach if consumer equilibrium by saying that utility measurement in terms like 1,2,3 is not realistic and has developed a theory based on ordinal concept of utility. Explain the same concept of consumer equilibrium as propounded by Hicks.?

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In ordinal approach we only compare commodities not measure utility in cardinal no in this equilibrium will find through budget line and indifference curve

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Prof Hicks has profounded concept of ordinal utility according to which we can't measure utility in numerical terms but we can give grades to it. It means we can decide how much satisfaction derived by a commodity by giving it grades

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Introduction:
Consumer equilibrium refers to the point at which a consumer maximizes their satisfaction or utility from a given budget constraint. While there are various approaches to understanding consumer equilibrium, one of the prominent frameworks is the cardinal approach, which focuses on measuring utility in numerical terms. However, Prof Hicks has challenged the relevance of this approach and proposed an alternative theory based on the ordinal concept of utility. This response will explain the concept of consumer equilibrium as propounded by Hicks and highlight its key features.

Hicks' Theory of Consumer Equilibrium:
1. Ordinal Concept of Utility: Hicks argues that utility cannot be measured in cardinal terms like 1, 2, 3, as the cardinal approach assumes. Instead, he asserts that utility can only be ranked or ordered in terms of preferences. This means that consumers can determine their preferences for different goods and services but cannot assign specific numerical values to their utility.

2. Indifference Curves: In Hicks' theory, consumer equilibrium is determined by the concept of indifference curves. An indifference curve represents different combinations of two goods that yield the same level of satisfaction or utility to the consumer. These curves depict the consumer's preferences and reflect the trade-offs they are willing to make between goods. Indifference curves are convex to the origin due to the principle of diminishing marginal rate of substitution.

3. Budget Constraint: Consumer equilibrium is also influenced by the consumer's budget constraint, which represents the limited amount of income available to spend on goods and services. The budget constraint is typically represented by a budget line, which shows the various combinations of goods that can be purchased given the consumer's income and the prices of the goods.

4. Tangency Point: Consumer equilibrium occurs at the point where the consumer's indifference curve is tangent to the budget line. This tangency point represents the optimal combination of goods that maximizes the consumer's utility, given their budget constraint. At this point, the marginal rate of substitution (MRS) between the goods is equal to the ratio of their prices.

5. Changes in Equilibrium: Consumer equilibrium can be affected by changes in factors such as income, prices of goods, or preferences. An increase in income or a decrease in prices will shift the budget line outward, allowing the consumer to purchase more goods and potentially reach a higher level of utility. Similarly, changes in preferences may alter the consumer's indifference curves, leading to a new equilibrium point.

Conclusion:
Prof Hicks' theory of consumer equilibrium challenges the cardinal approach by emphasizing the ordinal concept of utility and the role of indifference curves. According to this theory, consumer equilibrium is determined by the tangency point between the consumer's indifference curve and the budget line. By understanding the preferences and trade-offs of consumers, this theory provides valuable insights into the decision-making process and the factors influencing consumer choices.

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