Mu total utility marginal utility it means addition to the total utility from the. The theory of consumer behavior built on both the cardinal and ordinal approach is attribute d to modern economists such as alfred marshal, j. Consumers equilibrium through utility analysis can be ascertained with reference to. Sep 28, 2017 key differences between cardinal and ordinal utility. Consumers equilibrium refers to a situation where a consumer gets maximum satisfaction out of his given money income and given market price. The second condition for consumers equilibrium is convexity of indifference curve to the origin. Ordinal theory is also known as neoclassical theory of consumer equilibrium, hicksian theory of consumer behaviour, indifference curve theory. Consumer equilibrium is the point where consumer attains highest level of satisfaction. 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. The cardinalist and ordinalist approach to consumer.
This means that the utility can be ranked qualitatively. There are three conditions for consumers equilibrium. Cardinal and ordinal approaches to consumers behavior. A consumer is said to be in equilibrium when he feels that he cannot change his condition either by earning more or by spending more or by changing the quantities of thing he buys. The term equilibrium is frequently used in economic analysis. U is the level of satisfaction than an amount of satisfaction. The cardinal approach to consumer equilibrium posits that the consumer reaches his equilibrium when he derives the maximum satisfaction for given resources money and other conditions. It is because of the immeasurability of utility in cardinal terms that the consumer s behaviour has beenexplained with the help of ordinal utility by j. Thus the consumers equilibrium under the indifference curve theory must meet the following two conditions. Important questions for class 12 economics consumers. The tangency between the given price line and an indifference curve is a necessary but not a sufficient condition consumers equilibrium. In economics, a cardinal utility function or scale is a utility index that preserves preference orderings uniquely up to positive affine transformations.
Through this approach, organisations considered consumer needs and wants, leading to the formulation of the marketing concept. Consumer behavior from a cardinalist and ordinalist approach utility means satisfaction which consumers derive from commodities and services by purchasing different units of. What is consumer equilibrium under ordinal utility approach. Consumers equilibrium through indifference curve analysis. Basically for the cardinal approach, the consumer consumes two goods named s and t and as he or she consumes more of good s its utility decreases. Mar 03, 2014 theory of consumer behavior cardinal approach 1.
May 08, 2020 chapter 2 consumer equilibrium chapter notes, micro economics, class 12 edurev notes is made by best teachers of commerce. Cardinal approach to consumer equilibrium business jargons. This is an alternative, more modem approach to the analysis of consumer behaviour, which rests on more acceptable assumptions than the utility approach. Explain consumer equilibrium with the help of utility analysis. This is the first condition for the consumer to be in equilibrium that indifference curve should touch the budget line. Difference between cardinal and ordinal utility compare. Admin coming from engineering cum human resource development background, has over 10 years experience in content developmet and management. The ordinal approach in utility theory the ordinal theory suggests that utility is only relatively discernible but not quantifiable. It is assumed that individuals are rational in making decisions from their expenditures on consumer goods.
From wikipedia, the free encyclopedia ineconomics, utility is a measure of satisfaction. Consumer equilibrium cbse notes for class 12 micro. Thus at the equilibrium point e,mrsxyprice of good xprice of good y pxpy. A consumer is said to be highly satisfied when he allocates his expenditure in such a way that the last unit of money spent on each commodity yields the same level of utility. One of the major difficulties in studying this area is that it is impossible to predict human behavior. How do consumers choose from among various consumer goods. Read this article to learn about the consumers equilibrium in case of single and two commodities. Firms demand curve under different market situations.
Consumer equilibrium under marginal utility analysis cardinal approach 1. Introduction important questions for class 12 economics consumers equilibrium through utility approach. It refers to a position of rest, which provides the maximum benefit or gain under a given. 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 ordinal utility approach differs from the cardinal utility approach also called classical theory in the sense that the satisfaction derived. Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be measured numerically. This document is highly rated by commerce students and has been viewed 68508 times. Key differences between cardinal and ordinal utility. Ordinal approach to consumer equilibrium definition.
Chapter 3 consumers equilibrium cardinal utility iat classes. Some questions what is behind a consumers demand curve. Chapter 3 consumer preferences and choice 61 4 this is like producing a given output with fewer or cheaper inputs, or achieving the same medical result such as control of high blood pressure with less or weaker medication. There are two conditions of equilibrium under ordinal approach 1 necessary condition. Ordinal approach indifference curve characteristics budget line equilibrium of consumer. Cardinal, cardinal approach, cardinal utility, ordinal, ordinal approach, ordinal utility, utils about the author. The lesson discusses ordinal approach to consumers equilibrium and meaning and properties of indifference curve. A rational consumer will purchase a commodity up to the point. At this level, a consumer attains maximum satisfaction level at oe units of good y and of units of good x. Distinguish between the cardinal utility approach and ordinal utility approach are given below. 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.
Cardinalist and ordinalist approach of consumer behavior. Consumer behavior from a cardinalist and ordinalist approach utility means satisfaction which consumers derive from commodities and services by purchasing different units of money. Ordinal approach to consumer equilibrium business jargons. According to this approach, the utility is measurable and can be expressed in quantitative terms. Ordinal approach indifference curve characteristics. In this article we will discuss about the concept of consumers equilibrium, explained with the help of suitable diagrams and graphs. Distinguish between cardinal utility approach and ordinal. Cardinal and ordinal utility whereas the utility approach is based on the notion of cardinal utility, the indif. Equilibrium means a state of rest or a position of no change. What are the similarities in cardinal and ordinal approaches. Why is this approach superior to the cardinal approach.
Difference between cardinal and ordinal utility compare the. Under the first order condition, the consumer reaches his equilibrium in the same manner as he does under the cardinal approach of the twocommodity model. Consumer behavior from a cardinalist and ordinalist approach. What is consumer equilibrium under cardinal approach answers. Both forms of utility are based on a function that takes outcomes as the input, and give you a number that represents how much the person in question likes that outcome. Distinguish between the cardinal utility approach and ordinal. Now, lets understand how consumer reaches his equilibrium using the ordinal utility approach. The ordinal utility approach differs from the cardinal utility approach also called classical theory in the sense that the satisfaction derived from various commodities cannot be measured objectively. Cardinal utility refers to the satisfaction that can be measured number whereas ordinal utility refers to the satisfaction that can not measure by nu. In the case of ordinal utility, the numbers matter only in that some are bigg. Theory of consumer behavior how consumers make choices under income constraints 2. Doc cardinal and ordinal approaches to consumers behavior. Ordinal utility and the traditional theory of consumer. May 05, 2016 for the love of physics walter lewin may 16, 2011 duration.
Though cardinal utility theory is marshalls brilliant analysis of consumers behavior, the indifference curve theory or ordinal utility theory outweighs the former because it is a more realistic way to analyze consumers economic behavior. Cases of consumers equilibrium using marginal utility analysis the conditions of. Basic difference between cardinal and ordinal approach. A given price line should be tangent to an indifference curve or marginal rate of satisfaction of good x for good y mrs xy must be equal to the price ratio of the two goods. For the love of physics walter lewin may 16, 2011 duration. A consumer buys a commodity up to that amount at which its price is equal to its marginal utility. The ordinal approach defines two conditions of consumer equilibrium. Books chapter 2 consumer behavior in a services context.
Distinguish between cardinal utility approach and ordinal utility approach to consumer behavior. A given budget line must be tangent to an indifference curve, or the marginal rate of substitution between commodity x and commodity y mrs x,y must be equal to the price ratio between the two goods math\fracpxpymath. Jun 04, 2019 consumer equilibrium under marginal utility analysis cardinal approach 1. Ebooks chapter 2 consumer behavior in a services context unibg free download pdf, free pdf books chapter 2 consumer behavior in a services context unibg download, read online books chapter 2 consumer.
In figure19, there are three indifference curves ic1, ic2 and ic3. 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. The consumer theory explains the following properties of the consumer s behavior. Cardinal approach to consumer equilibrium definition. What is meant by consumer equilibrium under the ordinal approach to consumer satisfaction. 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. The following points are noteworthy so far as the difference between cardinal and ordinal utility is concerned. How is indifference curve analysis superior to marshallian. Example a bread has the power to satisfy hunger, books fulfil. 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. Theory of ordinal utilityindifference curve analysis. Utility is a series of assigned numbers to rank options by the consumer preference. Ordinal theory is also known as neoclassical theory of consumer equilibrium, hicksian theory of consumer behavior, indifference curve theory, optimal choice theory.
Consumers equilibrium refers to a situation where the consumer has achieved maximum possible satisfaction from the quantity of the commodities purchased given hisher income and prices of the commodities in the market. Kvs, delhi region consumer equilibrium it refers to a situation under which a consumer spends his entire income on purchase of a good in such a manner that gives him maximum satisfaction and he has no tendency to change it. Ordinal utility approach definition and explanation of the. 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. For example x ate an apple and got 10 util of utility. Given these assumptions, the consumer can buy 5 units of x by spending the entire sum of rs. The marginal utility per dollar spent on the first unit of good 1 is greater than the marginal utility. And, as such, t hey are clearly ordinal not cardinal.
Difference between cardinal and ordinal utility essay sample. Cardinal utility approach explanation of the concept. Consumers equilibrium it refers to a situation wherein a consumer gets maximum satisfaction from the purchases of given units of the commodity with his given income 2. A consumer is said to be highly satisfied when he allocates his expenditure in such a way that the last. This law can also be explained in another way to show the optimum purchase of the consumer or the consumers equilibrium. Chapter 2 consumer equilibrium chapter notes, micro. Consumer consumer is an economic agent who consumes goods and services for direct satisfaction of his her wants. Consumers equilibrium cardinal approach 2 commodities case 10. What is the difference between cardinal utility and. From time to time, different theories have been advanced to explain consumers demand for a good and to derive a valid demand theorem.
Jan 02, 2018 for the love of physics walter lewin may 16, 2011 duration. However, barzilais approach to ordinal utility, which is correct if one strictly adheres to the general notion of ordinality derived from the mathematical theory of measurement, is not the approach to ordinal utility taken by the traditional theory of consumer demand or by hicks and samuelson in their presentations of it. The consumers equilibrium in case of single and two. The distinction between cardinal and ordinal utility is important because a theory. This approach also explains the consumer s equilibrium who is confronted with the multiplicity of objectives and scarcity of money income. Utility it refers to want satisfying power of a commodity thus is refers to satisfaction derived from the consumption of a commodity. Consumer behavior from a cardinalist and ordinalist. Budget line is tangent to the highest possible indifference curve. Kvs, delhi region sum total of satisfaction that the consumer derives when a certain number of units of particular commodity are consumed tufqx or tu. Jan 04, 2018 difference between cardinal approach and ordinal approach cardinal approach the economist marshal and pigou etc. Ordinal approach to consumers equilibrium unacademy.
A consumer is one who buys goods and services for satisfaction of wants. Difference between cardinal and ordinal utility with. It can be measured by two approaches cardinal and ordinal utility approach. A consumer is said to be highly satisfied when he allocates his expenditure in such a way that the last unit of money spent on. How can a consumer attain equilibrium under ordinal utility approach. It refers to a position of rest, which provides the maximum benefit or gain under a given situation. The term consumers equilibrium refers to the amount of goods and services which the consumer may buy in the market given his income and given prices of goods in the market the aim of the consumer is to get maximum satisfaction from his money income. The ordinal utility theory or the indifference curve analysis is based on four main assumptions.