Page 100 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-5: The Revealed Preference Theory of Demand

Self Assessment Notes

State whether the following statements are True/False:
8. Selection indicates preference.
9. The theory of Hicks and Allen is better than revealed preference theory.
10. Revealed Preference Theory is real and scientific than earlier demand theories.
Fifth, the assumption that consumer selects only one combination on given price income condition is
wrong. It means consumer selects little from both the products. But it is almost impossible that a person
buys some parts of products.
Sixth, this assumption is also criticized that selection reveals preference. The consumer always thinks
before buying. But since a consumer not always thinks and buys the product, so buying of product
cannot indicate that the consumer reveals preference. So this theorem is not based on the market
behaviour of consumer but this is an unreal practice like all other economical theorems.
Seventh, the reveals preference theorem applies only in particular consumer. By this theorem, all other
things are constant; the negative sloped demand curve can be drawn for all the consumers. But this
technique does not help to draw the market demand schedule. Because if the price of X falls in market,
it can affect all other products and which can change the real income factor. However, for this product
X, the demand curve is sloped downward for the entire consumer, but in a specific region of price, to
redistribute the real income, the demand curve sloped upwards too. The theory of Hicks and Allen is
better than reveled preference theory because it can draw both demand curves of consumer and market
from price consumption curve.
Eight, according to T. Mazumdaar, the revealed preference theory is impossible for those conditions
where individual selector is unable to use diplomacy.
Lastly, the revealed preference theory is unable to analyze the behaviour of consumer in selecting
dangerous or indefinite selections. If there are three conditions A, B and C then consumer gives
preferences to A rather than B and C rather than A. A is definite from it but possibility of B or C is 50–50.
In this situation, to give more preference to C than A is not based on an observed behaviour.

5.7 Summary
· In this analysis, it shows that revealed indifference theory is not a correction of the substitution
analysis of Hicks and Allen. It does not differentiate substitution effect from income effect, left
Giffen’s paradox and does not analyse the market demand. But to publish the consumer behaviour
rather than one price product makes revealed preference theory is more real than substation curve
technique. Thus, this analysation of Samuelson is clear option of internal numerological theorem
of Hicks and Allen.

5.8 Keywords
· Origin: Origination
· Zone: Place
· Revealed: Displayed

5.9 Review Questions
1. What do you mean by demand of theory?
2. What do you mean by decrease in price?
3. What do you mean by Revealed Preference Theory?
4. Describe the demerits of Revealed Preference Theory.

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