Difference between cardinal and ordinal utility
In the realm of economics, understanding consumer behavior is crucial for businesses, policymakers, and economists alike. Two key concepts that help in this understanding are cardinal utility and ordinal utility. Though they both pertain to the satisfaction or value derived from goods and services, they approach the measurement of this satisfaction in different ways. This article explores the fundamental differences between cardinal and ordinal utility, providing a clear and comprehensive understanding of each concept.
What is Cardinal Utility?
Cardinal utility is a quantitative measure of satisfaction or happiness that a consumer derives from consuming goods and services. This approach assigns specific numerical values to the level of utility, allowing for a precise comparison between different levels of satisfaction.
Key Features of Cardinal Utility:
Quantifiable Measurement: Cardinal utility assigns exact numbers to the satisfaction gained from consumption, such as 10 units of happiness from one good and 20 units from another.
Mathematical Operations: Since cardinal utility is quantifiable, mathematical operations like addition, subtraction, and averaging can be applied to these values.
Marginal Utility: This concept is closely associated with marginal utility, which is the additional satisfaction gained from consuming one more unit of a good or service.
What is Ordinal Utility?
Ordinal utility, on the other hand, is a qualitative measure of satisfaction. It ranks preferences or choices in order of preference without assigning specific numerical values. This approach focuses on the relative positioning of preferences rather than their absolute measurement.
Key Features of Ordinal Utility:
Rank Ordering: Ordinal utility involves ranking goods and services based on the level of satisfaction they provide, such as preferring good A over good B, but not specifying how much more satisfying A is compared to B.
No Exact Numbers: Unlike cardinal utility, ordinal utility does not assign specific numbers to the levels of satisfaction. It merely indicates the order of preferences.
Utility Functions: Ordinal utility uses utility functions to represent preferences, which help in understanding consumer choices without needing precise numerical values.
Comparing Cardinal and Ordinal Utility
Understanding the differences between cardinal and ordinal utility is essential for analyzing consumer behavior and making informed economic decisions.
Measurement:
Cardinal Utility: Uses exact numerical values to measure satisfaction.
Ordinal Utility: Uses rank ordering to indicate preferences without numerical values.
Application:
Cardinal Utility: Suitable for scenarios where precise measurement of satisfaction is necessary.
Ordinal Utility: Ideal for situations where only the order of preferences matters.
Mathematical Operations:
Cardinal Utility: Allows for mathematical operations due to its quantifiable nature.
Ordinal Utility: Does not support mathematical operations, as it deals with rankings only.
Practical Implications
Cardinal utility is often used in more complex economic models and analyses where precise measurement of utility is required. For example, in cost-benefit analysis, cardinal utility helps quantify the benefits of different choices.
Ordinal utility is more common in everyday decision-making and simpler economic models. It helps in understanding consumer preferences and choices without needing to quantify the exact level of satisfaction.
Both cardinal and ordinal utility are essential concepts in economics, they serve different purposes. Cardinal utility provides a precise, numerical measure of satisfaction, making it useful for detailed economic analysis. Ordinal utility, with its focus on ranking preferences, is simpler and more intuitive for understanding basic consumer choices. By grasping the differences between these two types of utility, businesses, policymakers, and economists can better analyze and predict consumer behavior, ultimately leading to more effective decision-making and resource allocation.
Cardinal utility enables consumers to rank the magnitude of how much one prefer one good on other. On the case of Ordinal utility it does not try to give the magnitude of how much a consumer prefer a good.
Cardinal utility used in economic as function of evaluating satisfaction level derived by customer after consumption of products and services. In cardinal utility degree of satisfaction measured in numeric value or statistical number. Ordinal utility used in economic as a function to determine preference of satisfaction level derived by customer after consumption of goods and services. In ordinal utility preference of satisfaction level derived by customer after consumption of goods and services always represented without statistical number. Customers used percentage and other characters of goods and services to determine preference of one goods over another product. Ordinal utility can't evaluated numerically.
Cardinal utility is an economic function used by customers to know how many something used in number or quantity to get desired degree of satisfaction after consumption of goods and services. Book name Foundation on Economic explanation difference between cardinal and ordinal utility.
Whereas ordinal utility used in economic to know order of goods and services according to satisfaction preference of customers after consuming products. Ordinal utility used for ranking of goods and services according to customers preference of needs and demands.
Utility is a economic term used for measuring physiological fact which consists of wanting satisfaction power of goods and services.
Cardinal utility measurement in economic done in utils unit and ordinal utility measurements done in economic through ranking of satisfaction preference of goods and services.
Utils is considered as unit of measurement of cardinal utility and ranking of one goods in comparison with other goods in market tells consumer preference of goods.
In ordinal utility measurements of goods satisfaction level for consumer done subjectively and in cardinal utility goods satisfaction level measured objectively.
Quantitative value of goods are used for measuring cardinal utility which means not realistic in economic. Cardinal utility measurement unrealistic because in economics evaluation of satisfaction through quantitative way not much practically possible.
Qualitative evaluation done in ordinal utility for measurements of degree of satisfaction of goods. In economic qualitative evaluation of satisfaction make ordinal utility measurements more realistic.
Cardinal utility presented in diagram of indifference curve. Indifference curve tell about customers cardinal utility measured after consumption of goods. Ordinal utility also represented in diagram of marginal utility analysis.
Cardinal utility was given by Dr. Alfread marshall and his admirers whereas ordinal utility was given by Hicks and Allen.
Utility term used in economic can be defined as degree of satisfaction which consumer derive from consumption of 1 extra units of product. Utility differ person to person according to his mental ability and attitude.
Distinguish between cardinal utility and ordinal utility in table form
Table given below distinguish between cardinal utility and ordinal utility in table form.
| Ordinal Utility | Cardinal Utility |
|---|---|
| Consumer derived satisfaction after consumption of products evaluation done without using number. | Consumer derived satisfaction after consumption of products evaluated in numerical numbers |
| Ordinal utility used qualitative approach during analysis of degree of satisfaction. | Cardinal utility used quantitative approach during analysis of degree of satisfaction. |
| Consumer in ordinal utility rank of preference according to their derived satisfaction after consumption of products. | Consumer in cardinal utility makes measurements of degree of satisfaction derived after consuming products in utils. |
| Indifference curve analysis used for explanation ordinal utility. | Marginal utility analysis used for explanation of cardinal utility. |
| Ordinal utility measurements promoted by modern economist | Cardinal utility measurement promoted by traditional economist. |
| Ordinal utility measurements results considered as more realistic. | Cardinal utility measurement results considered not realistic in comparison with ordinal utility. |
What is Cardinal Utility?
This type of approach was deep study by group of economists leds by Professor Alfred Marshall. This approach propounded that Consumers satisfaction from the consumption of any goods can be measured in terms of utility.
Study of consumer behavior approach cardinal utility states that degree of satisfaction consumers derived after consumption of goods or services and can be measured degree of satisfaction in number.
Satisfying power of the commodity is known as utility and can be measured in terms of cardinal numbers (1,2,3,4,.......n). Cardinal Approach can measured or expressed in Utils. According to above economists they said that utility can be measured in terms of amount of money or monetary units.
For example if a Honda company gives 5000 units, a TVS company would gives 8000 units. This is important for welfare economic which tries to put values on consumption. Allocating efficiency is said to occur when
Marginal cost = Marginal utility
Theory of the utility cardinal and ordinal approach in hindi
Ordinal दृष्टिकोण कार्डिनल दृष्टिकोण से इस तरह से पूरी तरह से अलग है कि यह गहरा है कि उपयोगिता को मापा नहीं जा सकता है, लेकिन केवल व्यक्त किया जा सकता है। इसका मतलब है कि यहां उपभोक्ता को जो करना है| उसे विभिन्न वस्तुओं से प्राप्त संतुष्टि के आधार पर विभिन्न वस्तुओं में से चुनाव करने में सक्षम होना चाहिए।
इस प्रकार का दृष्टिकोण प्रोफेसर अल्फ्रेड मार्शल के नेतृत्व में अर्थशास्त्रियों के समूह द्वारा गहन अध्ययन था। इस दृष्टिकोण ने प्रतिपादित किया कि किसी भी वस्तु के उपभोग से उपभोक्ताओं की संतुष्टि को मापा जा सकता है|
What is Ordinal utility
This approach is totally different from cardinal approach in the way that it profound that utility can't be measured, but can be only expressed. It means that here what consumer needs to do is to find out his preferences in case of two or more good or commodities. He should able to make choices from different commodities on the basis of satisfaction he achieved from different commodities.
Ordinal Approach was given by economist like Hicks, Pareto, Allen, etc.
Ordinal Approach was given by economist like Hicks, Pareto, Allen, etc.
Why ordinal utility is more realistic
Ordinal utility used by consumers for measuring consumption of goods and services using qualitative characteristics. Ordinal utility is more realistic and not measured in numerical number.
Ordinal utility is more realistic based on satisfaction level of consumer derived from consumption of goods and services.
Ordinal utility is more realistic because consumer can really feel itself after consumption of goods and services. Ordinal utility is more realistic considered to consumers, due to ordinal utility based on qualitative characteristics derived after consumption of goods and services.
Ordinal utility is considered more than cardinal utility because ordinal utility measured qualitative satisfaction level after consumption of goods by consumers. Where as cardinal utility measured satisfaction level of consumers after consumption of goods in quantitative based. Cardinal utility utility based on marginal utility concept for measuring satisfaction level.