-1What Are The Similarities And Differences Between Marshall Ian’s And

Hicks Ian Demand Functions‘?

Similarities:
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.