Ordinal Utility Concept Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

in this particular video session what
we're going to do is examine the ordinal
utility theory and the process by which
this very stage that a consumer achieves
equilibrium that is they maximize the
total utility now the main difference
with any Cardinal utility theory on the
ordinal utility theory is vadik Cardinal
utility theory states that utility can
be calculated all right it is possible
to calculate a value the utility for
every unit consumed and therefore you'll
be able to calculate the total utility
the automated Zee Theory simply says the
opposite but we cannot actually
calculate utility in real world
how can you assign the numerical value
for a unit consumed or for a service
consumed so what if ordinate is very
positive that value may not be able to
calculate utility we can represent
different levels of satisfaction by a
diagram and this is where we bring the
indifference curve analysis to the
forefront so what is that indifference
curve as a consumer you have choices in
this case area is simply the compare the
choices between two goods in this case
then Y and good X and what we're simply
saying is that as an individual you
would have multiple options multiple
combination choices between good Y and X
in terms of how much of good Y you would
desire and how much objects you have
desirable so in the indifference curve
analysis the y-axis here represents the
quantity of units of good-y
that can be chosen by the consumer and
on the x-axis we have good x the
quantity of units of good-x that could
be chosen by the consumer how what we
see here is that you have different
combination choices represented by a b c
and d to realize your company
choice a the consumer can have this blue
bracket this amount of the Y anise
therefore smaller amount of the X or you
can choose combination choice C which
will give them more of X represented by
this green bracket and less of Y and
therefore we realize immediately as we
increase the consumption of Greg's
moving from the smaller blue bracket to
the larger green bracket it resulted in
a reduction in the company consumption
of good wine from the large blue bracket
to the smaller green bracket again this
depicts scarcity now while you're seeing
e b c and d for possible combination
choices every point along this curve
represents different combination choices
for the consumer but it is important to
note that regardless of which
combination choice is chosen along this
club every combination choice on the
same indifference curve will yield the
same level of utility I say again every
combination choice whether you take this
amount of the Y with this amount of the
X or maybe small amount of the Y and a
large amount of drag both combination
choices actually the same level of
utility in this particular case this
indifference curve use a value or
satisfaction of 20 so every combination
choice along the same indifference curve
will yield to the consumer 12 value of
20 so therefore how can a consumer on
the disc analysis automated Zaveri be
able to experience higher degrees of
utility you could simply rationalize but
if an indifference curve use only one
specific measure of utility it means
that the consumer we have to jump to or
be upon a new indifference curve with a
higher value this brings us therefore to
the concept of the indifference map
every consumer has an indifference map
and an indifference map shows different
number of indifference clubs or simply
represents or illustrates several
indifference curves what it means
therefore is that a consumer would
desire to be on the highest possible
indifference curve that they can achieve
now in this indifference map we have
three possible indifference curves for
this particular consumer I 1 I 2 and I 3
I 1 yields a value of utility of 20 I 2
yields infinity of 30 and I 3 use a
utility of 15 so regardless of where the
consumer chooses to consume an i1 every
combination trade yields a value of 20
regardless of where the consumer chooses
to consume on I to the utility derived
on on either combination joints will
yield 30 and on I 3 regardless of where
the consumer chooses to consume of good
one Greg every combination choice use a
value of 50 so if the consumer wants to
get maximum satisfaction maximum utility
they were prefer to be on I 3 as opposed
to I 2 and I 1 simply because I 3 has
the highest degree of utility which is a
value of 50 no while we know what the
consumer would want we now need to
determine what the consumer can actually
get and we know at the end of the day
what limits the choices of consumers in
most cases is the resource level of the
consumer a consumer can only go as far
as their resources will allow them and
that will bring us the introduction of
what we know as the budget line I will
introduce that in a next video so stay
tuned as we go on to discuss the
budget line Frank