Hicksian and Marshallian demand

From the microeconomics point of view, the different forms of demand functions can be transferred between each other given certain conditions, since many assumptions and conditions are the same and the ideologies behind them are also the same. However, when we are making our decisions, we are actually using different consumption decision making strategies. There are two types of demand corresponds that direct our consumption decision makings: one is Marshallian demand and the other is Hicksian demand.

The idea of Marshallian demand is once we know our budgets and prices of the goods that we want to consume, we are able to use Marshallian demand to find out the quantities of the goods we are going to consume in order to maximise our utilities. On the other hand, the idea of Hicksian demand is we make our consumption decisions in order to achieve certain levels of utility requirement and minimise our costs at the same time.

I think that during our ordinary life, we are more likely to use the idea of Hicksian demand rather than Marshallian demand to make our consumption decisions. This is because we are not likely to use our entire budgets for our consumptions and Marshallian demand requires us to use all our budgets to maximise our utilities but we always want to save some money for future consumptions and risk. Usually we want to buy something that is cheap and also able to meet our requirement, this is a typically Hicksian demand’s ideology that we minimise our expenditure to achieve our utility requirements.

What time are we likely to use the Marshallian demand’s ideology? I think when we are in poverty, we are more likely to use the Marshallian demand’s ideology to make our consumption decisions. When in poverty, the budget is very tight that we are more likely to be forced to use our entire budgets to make consumptions. When we have to use the entire consumptions, our goals become to maximise the utilities that we can gain from our consumptions, and this is the Marshallian demand’s ideology.

To conclude, for the majority of us, we are using Hicksian demand’s ideology to make our consumption decisions, as we do not use our entire budgets for our consumption.