According to this approach, the utility is measurable and can be expressed in quantitative terms. This approach also explains the consumer s equilibrium who is confronted with the multiplicity of objectives and scarcity of money income. Cardinal utility approach explanation of the concept. Theory of consumer behaviour cardinal approach limitations. For example x ate an apple and got 10 util of utility.
Approaches to studying consumer behaviour mba knowledge base. This is an alternative, more modem approach to the analysis of consumer behaviour, which rests on more acceptable assumptions than the utility approach. The theory of consumer behavior built on both the cardinal and ordinal approach is attribute d to modern economists such as alfred marshal, j. The means at the disposal of a man are not only scarce but they have alternative uses. Approaches to consumer behaviour researchmethodology. It can be measured by two approaches cardinal and ordinal utility approach. This familiar behaviour of marginal utility has been stated in the law of diminishing marginal utility according to which marginal utility of a good diminishes as an individual consumes more units of a good. May 14, 2014 january 14, 2015 by abey francis leave a comment.
The economics approach invites the consumer how much utility the consumer obtains for goods or service the buy. Cardinal utility is less realistic, as quantitative measurement of utility is not possible. Ordinal utility and the conceptual basis of costofliving. Distinguish between the cardinal utility approach and. Difference between cardinal and ordinal utility compare the. This chapter presents two different approaches that explain consumer behaviour i cardinal utility analysis and ii ordinal utility analysis. The cardinal utility approach answers these two questions on the basis of the following assumptions. There are two broad approaches to the study of consumer behavior. The cardinal approach is focused on consumer view on utility. Sep 28, 2017 key differences between cardinal and ordinal utility the following points are noteworthy so far as the difference between cardinal and ordinal utility is concerned. Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be measured numerically. Basis of of difference 1 valuation of satisfaction. A we all know that consumer is the one who uses goods and services to satisfy hisher wants.
Distinguish between the cardinal utility approach and ordinal. Cardinal and ordinal approaches to consumers behavior. There are two main approaches to the of consumer behavior of demand. Consumer behavior from a cardinalist and ordinalist approach utility means satisfaction which consumers derive from commodities and services by purchasing different units of money.
Consumer surplus p the area of this triangle is the total consumer surplus s p 0 d q q 43. The psychodynamic approach to the study of consumer behaviour is largely based around the ideas and theories of sigmund freud backhaus et al. The cardinal utility analysis believes that utility can. From wikipedia, the free encyclopedia ineconomics, utility is a measure of satisfaction. The ordinal utility approach is based on the following assumptions. Basic difference between cardinal and ordinal approach. Both the approaches represent the common human behavior and they are based upon human psychology and they lack any type of statistical data. Cardinal utility measures the utility objectively, whereas there is a subjective measurement of ordinal utility.
In economics, a cardinal utility function or scale is a utility index that preserves preference orderings uniquely up to positive affine transformations. Consumers can rank their preferences total utilitytu sum total of all the utilities derived from the total. Concept of cardinal utility analysis cardinal utility analysis is based on the cardinal measurement of utility which assumes that utility is measurable and additive. She he is assumed to be rational meaning that heshe earns at utility maximization, giving hisher income and commodity prices. An important tenet of cardinal utility analysis relates to the behaviour of marginal utility.
Operations on ordinal, cardinal, and expected utility see reference 2, has raised important. Consumer behaviour, models, psychoanalytic, theories. He seeks to maximize satisfaction from the limited income which is at his disposal. Approaches to studying consumer behaviour may 14, 2014 january 14, 2015 by abey francis leave a comment there are two broad approaches to the study of consumer behavior. Assumptions cardinal approach extremely doubtful the satisfaction derived from various commodities cannot be measured utils concept provided by walras is not satisfactory constant utility of money is not realistic money cannot not be taken as measuring rod as its own utility changes ldmu is an introspection and is psycological and. What are the similarities in cardinal and ordinal approaches. Preliminary notations and assumptions a consumer, in general, consumes many goods. Cardinal utility analysisapproach concept of utility.
Aug 11, 2011 difference between cardinal and ordinal utility the basic concept in this approach is utility which refers to satisfy power that a good or service consumed possesses in this approach, it is assumed that a consumer assigns a cardinal major which can be counted. For example, people may be able to express the utility that consumption gives for certain goods. What is the difference between cardinal and ordinal utility. In this section we are going to derive the consumers demand curve from the indifference curve. Cardinal utility theory approaches consumer demand from the standpoint of consumer utility, wherein demand is dependent upon factors of utility, price, income, substitutes and complementary goods. Ordinal utility approach definition and explanation of the. Cardinal vrs ordinal approach of consumer behaviour free essays. Difference between cardinal and ordinal utility with. Ordinal utility and the traditional theory of consumer demand. The distinction between cardinal and ordinal utility is important because a theory. Concept of cardinal utility analysis and its assumptions. According to the cardinal utility approach, the satisfaction derived from the consumption of a particular good or service can be measured in absolute numbers while according to the ordinal utility approach, the satisfaction derived from the. Difference in cardinal utility approach and ordinal utility approach to consumer behaviour.
Utility is the extent of satisfaction obtained from the consumption of products and services by consumers. Cardinal and ordinal approaches to the derivation of the demand function for managerial economics mcom delhi university cakart provides indias top m. The cardinal utility approach used in analyzing the consumer behavior depends on the following assumptions to find answers to the abovestated questions. Approaches to studying consumer behaviour mba knowledge. What is consumer behavior or consumer equilibrium notes pdf. The main assumption or premises on which the cardinal utility analysis rests are as under. Cardinal and ordinal approaches to the derivation of the demand function for managerial economics mcom delhi university. Theory of consumer behaviourcardinal approach limitations.
Doc cardinal and ordinal approaches to consumers behavior. Recently, cardinal utility approach to the theory of demand has been. Cardinal and ordinal utility whereas the utility approach is based on the notion of cardinal utility, the indif. The ordinal utility approach differs from the cardinal utility approach also called classical theory in the sense that the satisfaction derived from. The ordinal utility theory explains consumer behaviour by. In the chapter, we have discussed the choice and utility theory. A difference is that with ordinal utility approaches, you cannot numerically measure the level of consumer satisfaction.
Human wants are unlimited and they are of different intensity. This video will help to understand difference between cardinal and ordinal approach. Two utility indices are related by an affine transformation if for the value of one index u, occurring at any quantity of the goods bundle being evaluated, the corresponding value of the other index v satisfies a relationship of the form. Modem economists, particularly hicks gave ordinal utility concept to analyze consumer behavior. Top 6 difference between cardinal and ordinal utility customers is the ultimate users for any goods or services, and the producers only aim is to satisfying their needs and desires. A number of economists have contributed to this technique as it has evolved over the years, with the latest refinements attributed to. Theory of consumer behaviour utility marginal utility.
Basic difference between cardinal and ordinal approach basis. Cardinal and ordinal utility are theories that are used to explain the levels of satisfaction that a consumer derives from the consumption of goods and services. What is difference between ordinal approach and cardinal. The basic idea behind ordinal utility approach is that a consumer keeps number of pairs of two commodities in his mind which give him equal level of satisfaction. Cardinalist and ordinalist approach of consumer behavior. On the same line hickans cardinal theory also rests upon the diminishing marginal rate of substitution which is in reality he product of diminishing marginal utility. Pdf in sum, the cardinal utility numbers generated by neoclassical utility functions. The utility can be measured in cardinal numbers such as 1, 3, 10, 15, etc. Allen in their paper a reconsideration of the theory of value.
Therefore, heshe firstly prefers to purchase those goods which yield highest utility and lastly those that provide lowest utility. Distinguish between the cardinal utility approach and ordinal utility approach are given below. Ordinal utility states that the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically. Com faculty video classes online classes at very cost effective rates. Consumer behavior from a cardinalist and ordinalist. It is assumed that the consumers are rational, and they satisfy their wants in the order of their preference.
As a result of scarcity of resources, the consumer cannot satisfy all his wants. The ordinal approach defines two conditions of consumer equilibrium. Apr 30, 20 ordinal utility is a qualitative method that is used to measure consumption satisfaction. Cardinal vrs ordinal approach of consumer behaviour free. Behaviour concepts demand arise due to utility measurement of utility. This means that the utility can be ranked qualitatively. Differences between cardinal and ordinal utility approach. He has used a tool, called indifference curve, for consumer behavior analysis. Cardinal utility refers to the satisfaction that can be measured number whereas ordinal utility refers to the satisfaction that can not measure by nu. Ordinal utility states that the satisfaction which a consumer derives from the. Consumer surplus here is the generally accepted method of finding the total consumer surplus in a market 42. The ordinal approach to consumer equilibrium asserts that the consumer is said to have attained equilibrium when he maximizes his total utility satisfaction for the given level of his income and the existing prices of goods and services.
Ordinal theory is also known as neoclassical theory of consumer equilibrium, hicksian theory of consumer behavior, indifference curve theory, optimal choice theory. The cardinal approach can be measured qualitatively. This theory was developed by neoclassical economists like marshall, pigou, robertson etc. Basis of difference cardinal utility ordinal utility valuation of satisfaction according to the cardinal utility, the satisfaction derived from the consumption of a particular good and service can be measured in absolute numbers. Consumer behavior from a cardinalist and ordinalist approach. And, as such, t hey are clearly ordinal not cardinal. On the other end, the ordinal utility is more realistic as it relies on qualitative measurement. However, the level of satisfaction differs from an individual to individual and their mental position.
Difference between cardinal and ordinal utility essay 1170. For example, if a nissan car gives 5,000 units of utility, a bmw car. Difference between cardinal and ordinal utility essay. Cardinal and ordinal approaches to the derivation of the. Although utility cannot be measured but in cardinal approach of consumer behavior, the term which is used as a unit of utility is known as util and arithmetic numbers 1, 2, 3, are used. The theory of consumer behavior built on both the cardinal and ordinal. This chapter presents two different approaches that explain consumer behaviour i cardinal utility analysis and ii ordinal. It is because of the immeasurability of utility in cardinal terms that the consumers behaviour has beenexplained with the help of ordinal utility by j. There several theories that have been developed to try and explain the behavior of a consumer, however. Cardinal and ordinal approaches to consumer s behavior. The indifference curve technique was conceived as an alternative to the cardinal utility approach to the theory of consumer behaviour.
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