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Hitesh Jhanji, Lovely Professional University Unit-5: The Revealed Preference Theory of Demand

Notes
Unit-5: The Revealed Preference Theory of Demand

CONTENTS

Objectives
Introduction

5.1 Choice Reveals Preference

5.2 The Law of Demand
5.3 Derivation of the Demand Curve from Revealed Preference

5.4 Derivation of Indifference Curve from Revealed Preference
5.5 Superiority of Revealed Preference Theory

5.6 Defects of the Revealed Preference Theory
5.7 Summary

5.8 Keywords

5.9 Review Questions
5.10 Further Readings

Objectives

After studying this unit, students will be able to:
• Know the Law of Demand.
• Understand the Derivation of the Demand Curve from Revealed Preference.
• Know the Superiority of Revealed Preference Theory.
• Know the Defects of the Revealed Preference Theory.

Introduction

The derivation of demand curve from Prof. Samuelson is theoretical numerological analysis which
is introspective to the numerological analysis of Hicks and Allen. It is the third root of the logical
theory of demand. Hicks states, “Direct consistency test under strong ordering.” This theory analyzes
the behaviour of consumer for a combination of two products in market behaviour.

5.1 Choice Reveals Preference

The derivation of demand theory of Prof. Samuelson is based on imagination which tells that choice
reveals preference.

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