Friday, August 3, 2018

Cardinal Utility vs Ordinal Utility



Cardinal Utility


It enables customer to rank the magnitude of how much they prefix other words we can say that Cardinal utility is the utility where one good to another. The satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. 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.e. 1, 2, 3, and so on. 
For example, people may be able to express the utility that consumption gives for certain goods. For example, if a Nissan car gives 5,000 units of utility, a BMW car would give 8,000 units. This is important for welfare economics which tries to put values on consumption.
 

Ordinal Utility



In ordinal utility, the consumer only ranks choices in terms of preference but we do not give exact numerical figures for utility. Ordinal Utility is propounded by the modern economists, J.R. Hicks, and R.G.D. Allen, which states that it is not possible for consumers to express the satisfaction derived from a commodity in absolute or numerical terms.
For example: Suppose a person prefers tea to coffee and coffee to milk. Hence, he or she can tell subjectively, his/her preferences, i.e. tea > coffee > milk.

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