Distinguish between Cardinal and ordinal utility?
Cardinal Utility:
Cardinal utility is a concept in economics that assigns numerical values to the satisfaction or utility derived from consuming goods or services. It assumes that individuals can measure the exact amount of satisfaction they receive from consuming a good or service, and these measurements can be compared across individuals.
Key Points:
- Cardinal utility is based on the assumption that utility can be measured and expressed numerically.
- It assigns specific numerical values to the level of satisfaction derived from consuming goods or services.
- The numerical values assigned to utility are subjective and differ from person to person.
- It allows for the comparison of utility between different goods or services and between different individuals.
Ordinal Utility:
Ordinal utility is a concept in economics that ranks or orders the preferences of individuals without assigning specific numerical values to utility. It is based on the principle that individuals can determine their preferences and make choices based on the relative ranking of options, without measuring the exact level of satisfaction derived from each option.
Key Points:
- Ordinal utility focuses on the ranking or ordering of preferences rather than assigning specific numerical values.
- It recognizes that individuals can make choices based on the relative satisfaction or preference they have for different goods or services.
- It does not require the measurement of utility, but rather relies on the assumption that individuals can compare and rank their preferences.
- The ranking of preferences is subjective and differs from person to person.
- It allows for the comparison of utility between different options but does not provide a precise measurement of utility.
Comparison:
1. Measurement:
- Cardinal utility assigns specific numerical values to utility, while ordinal utility does not measure utility but focuses on the ranking of preferences.
2. Subjectivity:
- The numerical values assigned to utility in cardinal utility are subjective and differ from person to person. In contrast, the ranking of preferences in ordinal utility is also subjective and varies among individuals.
3. Comparison:
- Cardinal utility allows for the comparison of utility between different goods or services and between different individuals. On the other hand, ordinal utility enables the comparison of utility between different options but does not provide a precise measurement of utility.
4. Focus:
- Cardinal utility emphasizes the exact measurement of utility, while ordinal utility focuses on the relative ranking of preferences.
In conclusion, cardinal utility assigns numerical values to utility and allows for precise measurement and comparison, while ordinal utility focuses on the ranking of preferences without assigning specific numerical values. Both concepts have their significance in economic analysis and understanding consumer behavior.
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