QN:A We all know that consumer is the one who uses goods and services to satisfy his/her wants.
She /he is assumed to be rational meaning that he/she earns at utility maximization, giving his/her income and commodity prices.
There several theories that have been developed to try and explain the behavior of a consumer, however they can be categorized in to two:
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.
Ordinal utility theory:- it argues that a consumer cannot measure satisfaction numerically or subjectively instead she can rank the different baskets or bundles so as to choose the best basket.
Difference between cardinal and ordinal utility
The basic concept in this approach is utility which refers to satisfy power that a good or service consumed possesses in this approach, it is assumed that a consumer assigns a cardinal major which can be counted .
This means that a consumer can tell exactly how much satisfaction she can derive from consumption of a certain goods.
The theory assumes a cardinal measure in units called utils, using an instrument called utilometer ,however some economics have suggested that utility can be measured in monetary units by the amount of money offered for a commodity.
On the other hand the ordinal utility approach which argues that a consumer can’t measure satisfaction numerically or subjectively.
The ordinal utility is also commonly known as indifference curve theory because its analysis is based on on indifference curve.
Indifference curves are psychological levels of satisfaction hence are more hypothical then real.
differences between these two theory are The major:-
1. In ordinal utility theory , the consumer can’t be measured numerically the level of satisfaction derived from consumption of a good but can instead... [continues]
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