There several theories that have been developed to try and explain the behavior of a consumer, however they can be categorized in to two: 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.
Modern Economists Definition of Cardinal Utility The notion of Cardinal utility was formulated by Neo-classical economists, who hold that utility is measurable and can be expressed quantitatively or cardinally, i. It is assumed that one util is equal to one unit of money, and there is the constant utility of money.
Further, it has been realised with the passage of time that the cardinal measurement of utility is not possible, thus less realistic.
There are many difficulties in measuring utility numerically, as the utility derived by the consumer from a good or service depends on a number of factors such as mood, interest, taste, preferences and much more. Allen, which states that it is not possible for consumers to express the satisfaction derived from a commodity in absolute or numerical terms.
Modern Economists hold that utility being a psychological phenomenon, cannot be measured quantitatively, theoretically and conceptually. However, a person can introspectively express whether a good or service provides more, less or equal satisfaction when compared to one another.
In this way, the measurement of utility is ordinal, i. Suppose a person prefers tea to coffee and coffee to milk. Key Differences Between Cardinal and Ordinal Utility The following points are noteworthy so far as the difference between cardinal and ordinal utility is concerned: Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be measured numerically.
Ordinal utility states that the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically.
Cardinal utility measures the utility objectively, whereas there is a subjective measurement of ordinal utility. Cardinal utility is less realistic, as quantitative measurement of utility is not possible. On the other end, the ordinal utility is more realistic as it relies on qualitative measurement.
Cardinal utility, is based on marginal utility analysis. As against this, the concept of ordinal utility is based on indifference curve analysis.
The cardinal utility is measured in terms of utils, i. On the contrary, the ordinal utility is measured in terms of ranking of preferences of a commodity when compared to each other.
Cardinal utility approach propounded by Alfred Marshall and his followers. Conversely, ordinal utility approach pioneered by Hicks and Allen. Conclusion These two above mentioned demand analysis approaches are not in competition with each other, but during the analysis of consumer behaviour, they represent two levels of sophistication.
Both cardinal and ordinal utility are vital to assess and analyse consumer demand for a good or service, irrespective of the purpose.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.
Journal of Academic and Business Ethics Utility, ethics and behavior, Page 3 determinant in Western society. But specifically, it is economics that has incorporated, with.
Difference Between Cardinal And Ordinal Utility. Difference Between Cardinal And Ordinal Utility; Cardinal And Ordinal Utility. DIFFERENCE BETWEEN CARDINAL UTILITY AND ORDINAL UTILITY. Basis: Cardinal Utility: Ordinal Utility (1) Meaning: It assumes that the satisfaction can be measured & expressed in cardinal i.e.
countable numbers. Utility functions are also related to risk measures, with the most common example being the entropic risk measure. Cardinal and Ordinal Utility We will write a custom essay sample on.
Essay on Compare Ordinal and Cardinal Utility systems. The paper uses a case study of a manufacturing facility to illustrate the concepts. 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.
Read this essay on Cardinal and Bluejay Comparison. Come browse our large digital warehouse of free sample essays. Cardinal Utility Analysis/Approach: Definition and Explanation: Human wants are unlimited and they are of different intensity.
The purpose of this paper is to compare three empirical articles on the topic of doctoral.