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Hicks' Revised Theory of Demand

Hicks' Revised Theory of Demand Hicks's first theory of demand was presented in his book Value and Capital. He revised his theory and published his book. A Revision of Demand Theory in 1956. Samuelson's revealed preference (R.P.) theory, the growing importance of econometrics and other allied developments led to this revision. In his revision of the demand theory. Hicks emphasized the econometric approach to the theory of demand.

Hicks' Revised Theory of Demand

Hicks's first theory of demand was presented in his book Value and Capital. He revised his theory and published his book. A Revision of Demand Theory in 1956. Samuelson's revealed preference (R.P.) theory, the growing importance of econometrics and other allied developments led to this revision. In his revision of the demand theory. Hicks emphasized the econometric approach to the theory of demand.

 

Let us first notice the salient points in Hicks's revised theory. Even in this new theory, Hicks confirmed his belief in the ordinal approach to the utility theory and rejected the concept of utility hypothesis of independent utilities.

But it is curious that Hicks, who was largely responsible for popularizing indifference curves in economic analysis, almost gave them up in his revision of demand theory. Among the disadvantages of indifference curves he mentions that: (a) this technique cannot include more than two commodities; and (b) it is based on the assumption of continuity which is generally not to be found in economic field. The new method that he adopted was in his view, more effective in clarifying the nature of preference hypothesis itself.

Hicks start by taking up an ideal consumer who is supposed to be influenced by current prices and incomes alone in his behavior. Hicks adopts preference hypothesis for explaining the behavior of an ideal consumer. Preference hypothesis assumes behavior according to scale of preferences.

According to Hicks, "the demand theory which is based upon preference hypothesis turns out to be nothing else but an economic application of the logical theory of ordering". After drawing a distinction between strong ordering and weak ordering, he proceeds to base his demand theory on weak ordering (as distinguished from strong ordering adopted by Samuelson in his R.P. theory). To use his own words, "A weak ordering consists of divisions into groups, in which sequence of groups is strongly ordered, but in which there is no ordering within the groups. Since all combinations on an indifference curve are equally desirable or represent the same level of satisfaction, it illustrates weak ordering. It is obvious that in weak ordering, the actual choice fails to reveal definite preference. The various price-income lines drawn there represent weak ording.

Hicks objects to strong ordering. He says that a 'two-dimensional continuum point cannot be strongly ordered." According to him, where the choice is between any goods which is available in discrete units and money which is finally divisible, the possibility of equally desired combinations cannot be ruled out. The concept of strong ordering must, therefore, be given up. According to Hicks, the choice of a particular combination does not indicate preference for that particular combination over all other possible alternative combination which is preferred to the one chosen.

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