Which one of the following is not the assumption of indifference curve analysis?

Question

Accepted Answer

The correct option is 3:

The core difference between the Cardinal Utility Approach and the Ordinal Utility Approach (Indifference Curve Analysis) lies in their foundational assumptions regarding utility measurement. The assumption of "Constant Marginal Utility (MU) of money" is a necessary and central assumption of the Cardinal Utility Approach (as formulated by economists like Marshall) to ensure that the measuring rod (money) remains stable when calculating the utility derived from consuming goods. However, the Indifference Curve Analysis was developed precisely to overcome this restrictive assumption by measuring satisfaction in terms of rank, not units. Therefore, the indifference curve approach does **not** assume a constant marginal utility of money, making this the correct answer as the non-assumption.

The incorrect option is 1 (Weak ordering): The assumption of weak ordering (or rationality) is fundamental to indifference curve analysis. It states that a consumer can compare any two bundles of goods and either prefers one over the other or is indifferent between them.

The incorrect option is 2 (Constant income): While not an explicit assumption of the *curve* itself, the analysis of consumer equilibrium using indifference curves requires the consumer's income (the budget constraint) to be fixed in the short run to define the possible consumption space. Changes in income cause shifts in the budget line, which are analyzed separately.

The incorrect option is 4 (Ordinal nature of utility): This is the defining assumption of indifference curve analysis. It posits that the consumer can only rank different combinations of goods according to preference (e.g., A is better than B), without needing to assign a quantifiable numerical value (utility) to the satisfaction derived.