Sita and Geeta are two close friends and both are graduate working women. Sita is an economic graduate and doing research in economics while Geeta is a customer relation manager in a multinational company. In 1st January, 2023 both the friends decide to go out for a dinner to celebrate new year. Geeta is fond of Ice-Cream (Orange bar) and has decided to buy from a street vendor ₹10 unit after discount. She has also offered to Sita but Sita denied as having throat infection.

Geeta has requested to Sita to apply economics principles and to respond, when she should be stopped consuming more ice-cream. On consuming 3rd unit of Ice-cream, Geeta has obtained additional satisfaction of 18 units while the marginal utility of a rupee is 2 utils.

Which of the following is not the assumption of Utility Approach?

Consumer is having monotonic Preferences.

The correct answer is option (4) : Consumer is having monotonic Preferences.

In consumer theory, we deal with two main approaches: the Utility (Cardinal) Approach and the Indifference Curve (Ordinal) Approach.

1. Monotonic Preferences is an assumption of the Indifference Curve (Ordinal) Approach. It means that a consumer always prefers more of a commodity to less, as it provides a higher level of satisfaction.

2. The other three options are core pillars of the Utility (Cardinal) Approach:

   • Price remains constant: We assume the market price doesn't change during the consumption process to calculate the equilibrium.

   • Law of Diminishing Marginal Utility (LDMU): This is the fundamental law stating that as we consume more units, the satisfaction from each additional unit decreases.

   • Utility in Utils: The cardinal approach assumes utility can be measured in exact numbers (units called "utils").