Difference between cardinal and ordinal utility

The equilibrium points A, and B in Diagram 1 show the optimum quantities demanded of a consumer faced with different price levels, ceteris paribus. The very nature of the corporate social-responsibility movement embodies the disagreement about the notion that corporations should seek primarily to add shareholder value.

In other words, macroeconomics focuses on the broader large scale economy of a society. Cardinal Utility is the idea that economic welfare can be directly observable and be given a value.

Cardinal utility theory

One way to try and put values on goods utility is to see what price they are willing to pay for a good. Prepare a table showing the method of calculation of sales price under CST Act, The term economics is the broader term, however within this, there are additional fields such as microeconomics and macroeconomics. Modern Economists keep that utility being a psychological phenomenon, cannot be calculated quantitatively, theoretically and conceptually. It assumes consistency and transitivity. The demand curve derived represents the different states of utility maximization of a consumer when price changes. For example suppose a cup of orange juice has utility of utils , a cup of tea has a utility of 80 utils , and a cup of water has a utility of 40 utils when speaking of cardinal utility , it could be concluded that the cup of orange juice is better than the cup of tea by exactly the same amount by which the cup of tea is better than the cup of water.

Cardinal utility theory:- it argues that a consumer has the capacity to measure the level of satisfaction that she derives from consumption of a given quantity of a commodity.

It is temping when dealing with cardinal utility to aggregate utilities across persons. Cardinal utility is less realistic, as quantitative measurement of utility is not possible. For example, people may be able to express the utility that consumption gives for certain goods.

It is one of the theoretical conclusion of the deduction process. The change in prices are expressed by the rotation of the budget line.

What is the relation between total utility and marginal utility

The ability of consumers to make exact evaluations of utility is not clear. On the contrary, the ordinal utility is measured in terms of ranking of preferences of a commodity when compared to each other. Cardinal utility expresses that the satisfaction the consumer derives by consuming goods and services measured with numbers. The difference between microeconomics and macroeconomics is analogous to the human body and the individual cell that makes up the human body. Ordinal utility just ranks in terms of preference. Further, it realized with time that the cardinal measurement of utility is not possible, therefore less realistic. It is assumed that one util is equal to one unit of money, and there is the constant utility of money. However today we are not going to discuss about the secret behind Coca-Cola success.

Related This entry was posted in. QN:B Assumption of Ordinal Utility The ordinal utility approach to consumer behavior is built on the following assumption;- i. Jeremy Bentham talked about utility as maximising pleasure and minimising pain.

Cardinal utility approach propounded by Alfred Marshall and his followers.

cardinal utility approach pdf

Ordinal utility expresses that the satisfaction the consumer derives from the consumption of goods and services not measured in numbers.

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Difference Between Cardinal Utility vs. Ordinal Utility