Theory of Consumer’s Demand

Every consumer has limited income but there is a large number of goods and services that he would like to  purchase for his consumption. In quantitative terms one’s income may be small or large but it is never sufficient to purchase all the goods and services that one would like to purchase. Perforce everyone has to make a rational choice of what to have and in what quantities and what not to have. His choice of spending his limited income  on different goods and services would be rational when he spends it in such a manner that he gets maximum total satisfaction. The theory of consumer’s demand, therefore, explains the economic principles underlying the allocation of the consumer’s limited income over various goods and services in a manner that leads to the maximization of his total satisfaction. Therefore, you will study the economic principles a rational consumer should follow while spending his limited income over various goods and services so as to maximize his total  satisfaction.

There are various alternative approaches to the theory of consumer’s demand out of which, we shall  discuss the two alternative approaches – one is known as the “Utility Analysis” and the other as the  “Indifference  Curve Analysis”. The utility analysis is associated with the name of Alfred Marshal, a British  economist and therefore is also known as ‘Marshallian Utility Analysis.’ J.R. Hicks, another British economist  propounded “indifference Curve Analysis”, as alternative to the marshallian utility analysis, to explain the  consumer’s behavior. The utilitarian analysis assumes that utility derived by a consumer from the consumption of a commodity can be measured in quantitative terms. But the indifference curve analysis refutes the basic assumption  that utility can be measured and explains that quantitative measurability of utility is not necessary to explain  the  consumer’s behavior.

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