Question

State two differences between utility analysis and indifference curve analysis.

What are the two basic differences be

tween utility analysis and indifference curve analysis?

Answer 1

Sr. No.	Basis of Difference	Utility analysis	Indifference curve analysis
1.	Independent Commodities	The main defect of this analysis is that only independent goods are considered. Substitute goods and complementary goods cannot be studied under this.	This analysis is free from this assumption. It studies all types of goods, such as substitute, complementary, and unrelated goods.
2.	Measurement of utility	Here, the utility is quantitative and can be measured in cardinal numbers 2, 4, 6, 8, etc.	Here, the utility is orderable, not quantitative. Thus, the technique ‘ordinal measurement of utility’ is used.
3.	Assumption of Constant Marginal Utility of Money	It is based on the assumption that the marginal utility of money is constant.	It is free from this unrealistic assumption of utility analysis, as in real life, the marginal utility of money can never be constant.
4.	Price Effect	Due to the assumption of constant marginal utility of money, the price effect cannot be split into the substitution effect and income effect.	In this, the price effect can be split into income and substitution effects, defining the extent of both effects separately.