Since utility is a psychic feeling and a subjective thing it cannot be measured

Since utility is a psychic feeling and a subjective

This preview shows page 16 - 18 out of 29 pages.

Since utility is a psychic feeling and a subjective thing, it cannot be measured in quantitative terms. In real life, consumers are only able to compare the satisfactions derived from various goods or various combinations of the goods. In other words, in the real life consumer can state only whether a good or a combination of goods gives him more or less, or equal satisfaction as compared to another. Thus, economists like J.R. Hicks are of the opinion that the assumption of cardinal measurability of utility is unrealistic and therefore it should be given up. (2) Hypothesis of independent utilities is wrong:
Image of page 16
Utility analysis also assumes that utilities derived from various goods are independent. This means that the utility which a consumer derives from a good is the function of the quantity of that good and of that good alone. In other words, the assumption of independent utilities implies that the utility which a consumer obtains from a good does not depend upon the quantity consumed of other goods; it depends upon the quantity purchased of that good alone. On this assumption, the total utility which a person gets from the whole collection of goods purchased by him is simply the total sum of the separate utilities of various goods. In other words, utility functions are additive. Neo-classical economists such as Jevons, Menger, Walras and Marshall considered that utility functions were additive. But in the real life this is not so. In actual life the utility or satisfaction derived from a good depends upon the availability of some other goods which may be either substitutes for or complementary with each other. For example, the utility derived from a pen depends upon whether ink is available or not. On the contrary, if you have only tea, then the utility derived from it would be greater but if along with tea you also have the coffee, then the utility of tea to you would be comparatively less. Whereas pen and ink are complements with each other, tea and coffee are substitutes for each other. It is thus clear that various goods are related to each other in the sense that some are complements with each other and some are substitutes for each other. As a result of this, the utilities derived from various goods are interdependent, that is, they depend upon each other. Therefore, the utility obtained from a good is not the function of its quantity alone but also depends upon the existence or consumption of other related goods (complements or substitutes). It is thus evident that the assumption of the independence of utilities by Marshall and other supporters of marginal utility analysis is a great defect and shortcoming of their analysis. As we shall see below, the hypothesis of independent utilities along with the assumption of constant marginal utility of money reduces the validity of Marshallian demand theorem to the one- commodity model only.
Image of page 17
Image of page 18

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture