EXPLAINING UTILITY

UTILITY :

Utility has a great significance in economics."The capacity of goods or services to satisfy a human want is known as utility."

Example : 

The utility of a cigarettes is zero to a non smoker, while the same packet may have a very high utility for a smoker.

Therefore, the utility depends upon two things :-

(i) The inherent quality of goods or services.

(ii) The intensity of the want of the consumer for that good or service at that point of time.

Cardinal Utility :-

According to this analysis we can measure utilities  derived from the consumption of different commodities in terms of arbitrary units called utils.1,2,3,4 are called cardinal numbers.'Alfred Marshall' followed cardinal utility approach to explain the theory of consumer behavior.

In simple terms cardinal utility analysis gives numerical expression to utility.

Example : Law of diminishing marginal utility 

Ordinal Utility :-

According to this approach utilities cannot be measured in numerical terms it is a subjective concept .The ordinal numbers ranked utilities are arranged in a serial order such as 1st, 2nd, 3rd etc.The indifference curves analysis based on ordinal utility  analysis.