5 Concepts on Which the Revealed Preference Theory is Based
Both ‘utility analysis’ and ‘indifference curves analysis’ use introspective method or psychological approach to explain consumer’s behaviour and demand.Theory, propounded by Prof. PA. Samuelson, attempts to explain consumer’s behaviour and consumer’s demand on the basis of observed market behaviour of the consumer in different price-income situation.Thus, the revealed preference theory provides behaviouristic explanation of consumer’s demand. ADVERTISEMENTS: The revealed preference theory is based on the following concepts or elements: (i) Ordinal utility: According to Prof. Samuelson utilities are merely comparable and not quantifiable. It means it is based on the concept of ordinal utility. Image Source : pa211sw.communityos.org (ii) Preference hypothesis: It means when a consumer chooses a particular combination of goods, say P, out of various combinations available to him in a given price-income situation, then he reveals his…