Explanation of Utility as an Ordinal Concept

Utility is a term used in economics to describe the satisfaction or happiness a consumer derives from consuming a good or service. It is an ordinal concept, not a cardinal one.

Ordinal Concept

Ordinal concepts are those that describe a rank order of preferences, such as first, second, third, etc. In economics, utility is an ordinal concept because it does not measure the total amount of satisfaction a consumer receives from a good or service, but rather the ranking of preferences among different goods or services.

Cardinal Concept

In contrast, cardinal concepts measure the total amount of a particular attribute, such as weight or height, and can be expressed in numerical terms. For example, if a consumer receives 10 units of utility from consuming a good, and 20 units of utility from consuming another good, we might say that the second good provides twice as much utility as the first.

Examples

For instance, if a consumer prefers a chocolate cake to a vanilla cake, we can say that the chocolate cake provides more utility than the vanilla cake. However, we cannot say by how much more, because utility is not a measurable quantity. It is simply a way of ranking preferences.

Similarly, if a consumer prefers to spend $50 on a new shirt rather than on a dinner, we can say that the shirt provides more utility than the dinner. However, we cannot say by how much more, because utility is not a measurable quantity.

Conclusion

In conclusion, utility is an ordinal concept in economics because it measures the rank order of preferences among different goods or services, rather than the total amount of satisfaction derived from them. Therefore, we cannot express utility in numerical terms, and it is not a measurable quantity.